Guarantees for Bonds Issued for Community or Economic Development Purposes, 8295-8328 [2013-02055]
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Vol. 78
Tuesday,
No. 24
February 5, 2013
Part IV
Department of the Treasury
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Community Development Financial Institutions Fund
12 CFR Part 1808
Guarantees for Bonds Issued for Community or Economic Development
Purposes; Final Rule
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Federal Register / Vol. 78, No. 24 / Tuesday, February 5, 2013 / Rules and Regulations
DEPARTMENT OF THE TREASURY
Community Development Financial
Institutions Fund
12 CFR Part 1808
RIN 1559–AA01
Guarantees for Bonds Issued for
Community or Economic Development
Purposes
Community Development
Financial Institutions (CDFI) Fund,
Department of the Treasury.
ACTION: Interim rule with request for
public comment.
AGENCY:
The Department of the
Treasury is issuing the interim rule
implementing the Community
Development Financial Institutions
(CDFI) Bond Guarantee Program,
established through section 1134 of the
Small Business Jobs Act of 2010 and
administered by the CDFI Fund, under
authority delegated by the Secretary of
the Treasury.
DATES: Interim rule effective April 8,
2013. Comment due date: Comments on
the interim rule must be received in the
offices of the CDFI Fund on or before
April 8, 2013.
ADDRESSES: All comments concerning
the interim rule should be submitted
and viewed through the Federal eRulemaking Portal, https://
www.regulations.gov. Comments may
also be addressed to Lisa M. Jones,
Manager, CDFI Bond Guarantee
Program, by mail to the CDFI Fund,
SUMMARY:
Department of the Treasury, 1500
Pennsylvania Avenue NW., Washington,
DC 20220; by email to
cdfihelp@cdfi.treas.gov; or by facsimile
at (202) 508–0090 (this is not a toll free
number). Comments will be made
available for public review on the CDFI
Fund’s Web site at www.cdfifund.gov.
FOR FURTHER INFORMATION CONTACT: Lisa
M. Jones, Manager, CDFI Bond
Guarantee Program, CDFI Fund, at (202)
653–0421 (this is not a toll free number).
Information regarding the CDFI Fund
and the CDFI Bond Guarantee Program
may be downloaded from the CDFI
Fund’s Web site at https://
www.cdfifund.gov.
SUPPLEMENTARY INFORMATION:
I. Executive Summary
A. Purpose of the Regulatory Action
1. The need for the regulatory action
and how the action will meet that need:
The CDFI Bond Guarantee Program is
authorized by section 1134 of the Small
Business Jobs Act of 2010 (Pub. L. 111–
240; 12 U.S.C. 4713a) (the Act), which
requires the Secretary of the Treasury to
promulgate regulations to carry out that
section of the Act. Capitalized terms
used herein and not defined elsewhere
are defined in section 1808.102 of the
interim rule.
2. Statement of legal authority for the
regulatory action: 12 U.S.C. 4713a (j)(1).
B. Summary of the Major Provisions of
the Regulatory Action
1. General provisions: Subpart A
(sections 1808.100–106) sets forth the
CDFI Bond Guarantee Program’s
purpose, summary, program definitions,
deviations, and relationship to other
programs, among other provisions.
2. Eligibility: Subpart B (sections
1808.200–202) sets forth eligibility
requirements and responsibilities for
certain CDFI Bond Guarantee Program
participants, particularly the Qualified
Issuer, Designated Bonding Authority,
and Eligible CDFIs.
3. Eligible activities: Subpart C
(sections 1808.300–309) sets forth the
activities that are allowable under the
CDFI Bond Guarantee Program, as well
as interest rates, terms and conditions
for Bonds, Bond Issues, the Risk-Share
Pool, Bond Loans, Secondary Loans,
and the Relending Account.
4. Applications for Guarantee and
Qualified Issuer: Subpart D (sections
1808.400–401) sets forth the parameters
of the Notice of Guarantee Availability,
the Guarantee Application (which
includes the Capital Distribution Plan),
and the Qualified Issuer Application.
5. Evaluation and selection: Subpart E
(sections 1808.500–504) describes how
the CDFI Fund will evaluate
applications submitted by certain
interested parties.
6. Terms and conditions of Guarantee:
Subpart F (sections 1808.600–627) sets
forth terms and conditions of the
Guarantee, certain parties’ roles and
duties, representations and warranties,
covenants, and reporting, conflict of
interest, compliance, and other
requirements.
II. Summary of Estimated Economic
Benefits
Discounting by 3%
$200 million issuance
Discounting by 7%
$2 billion issuance
$200 million issuance
$2 billion issuance
COSTS
Government costs ..........................
Eligible CDFIs ................................
Low-Income communities ..............
$19.9 million ...................
$4.6 million .....................
n/a ..................................
$28.8 million ...................
$45.7 million ...................
n/a ..................................
$13.4 million ...................
$4.2 million .....................
n/a ..................................
$18.6 million.
$41.9 million.
n/a
$200 million ....................
$2 billion.
TRANSFERS
Low-Income communities ..............
$200 million ....................
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III. Background
The Community Development
Financial Institutions (CDFI) Bond
Guarantee Program is authorized by the
Small Business Jobs Act of 2010 (Pub.
L. 111–240; 12 U.S.C. 4713a) (the Act).
Section 1134 of the Act amended the
Riegle Community Development and
Regulatory Improvement Act of 1994
(the Riegle Act) (12 U.S.C. 4701, et seq.)
to provide authority to the Secretary of
the Treasury to establish and administer
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$2 billion .........................
the CDFI Bond Guarantee Program.
Under authority delegated by the
Secretary of the Treasury, the CDFI
Bond Guarantee Program is
administered by the Community
Development Financial Institutions
Fund (CDFI) Fund, a wholly owned
government corporation within the U.S.
Department of the Treasury. Pursuant to
the Act the Secretary of the Treasury
will provide a Guarantee for the
repayment of the full amount of the
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Bond Issue, including the Verifiable
Principal, Interest, and Call Premium,
issued to finance Bond Loans to
Certified CDFIs for Eligible Community
or Economic Development Purposes for
a period not to exceed 30 years. The
Bonds will support CDFI lending in
Investment Areas by providing a source
of low-cost, long-term capital to Eligible
CDFIs.
Consistent with the Office of
Management and Budget (OMB)
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Circular A–129 (Policies for Federal
Credit Programs and Non-Tax
Receivables), Bonds issued pursuant to
the CDFI Bond Guarantee Program will
be purchased by the Federal Financing
Bank (FFB), a body corporate and
instrumentality of the Federal
Government under the general
supervision and direction of the
Secretary of the Treasury. As required
by the Act, the Guarantee will be fully
assignable and transferable to capital
markets on terms and conditions that
are consistent with comparable Federal
Government-guaranteed bonds and
satisfactory to the CDFI Fund, the
Guarantor, and the FFB.
The interim rule creates the regulatory
requirements and parameters for CDFI
Bond Guarantee Program
implementation and administration
including, among others, Qualified
Issuer eligibility, application
requirements, application review,
selection criteria, Guarantee and Bond
Loan documentation, eligible uses of
Bond Proceeds and Bond Loan
proceeds, terms and conditions, and
reporting requirements. The CDFI Fund
seeks public comment on the entire
interim rule.
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IV. Responses to the Request for Public
Comment
On July 1, 2011, the CDFI Fund
published in the Federal Register a
Request for Public Comment (76 FR
38577) (the RPC), seeking public
responses to specific questions
regarding CDFI Bond Guarantee
Program design, implementation, and
administration. The CDFI Fund posed
specific questions regarding a number of
issues, including the following: how
certain terms should be defined in the
regulations; the eligible uses of funds
(specifically, whether there should be
any limitations on the types of loans
that can be financed or refinanced with
Bond Proceeds); provisions of the
Guarantee; the eligibility of entities
participating in the CDFI Bond
Guarantee Program; and how the CDFI
Fund should determine that a Qualified
Issuer has the appropriate expertise,
capacity, and experience to make Bond
Loans for Eligible Community or
Economic Development Purposes.
The CDFI Fund received more than 60
comment letters in response to the RPC.
All comments have been reviewed by
the CDFI Fund and have been taken into
consideration in the drafting of the
interim rule. A summary of the
collective comments received in
response to the RPC (as well as the CDFI
Fund’s responses) follows.
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A. Definitions
The Act requires that Bond Proceeds
be used to make Bond Loans to Eligible
CDFIs and that those Eligible CDFIs use
the Bond Loan proceeds for Eligible
Purposes. Such purposes include the
various uses of financial assistance
authorized under the Riegle Act, as well
as the provision of community or
economic development in ‘‘low-income
or underserved rural areas.’’ Comments
were solicited as to how the CDFI Fund
should define those terms.
(1) Low-Income
With respect to defining Low-Income,
the majority of comments suggested that
the U.S. Department of Housing and
Urban Development (HUD) definitions
for States and Metropolitan Statistical
Areas (MSAs) should be followed,
including HUD definitions that are not
based on census tracts. Other comments
suggested that Low-Income should be
defined: (i) In alignment with
definitions used in other CDFI Fund
programs such as the Community
Development Financial Institutions
(CDFI) Program, the Native American
CDFI Assistance (NACA) Program, and
the New Markets Tax Credit Program;
(ii) as up to 120 percent of the Area
Median Income as defined by HUD; (iii)
based upon low-income school districts;
(iv) based upon low wealth rather than
income level; or (v) using Federal
banking agencies’ definitions for
determining Community Reinvestment
Act compliance.
The CDFI Fund’s Response:
The CDFI Fund has adopted the
definition of Low-Income that is set
forth in section 1808.102 of the CDFI
Bond Guarantee Program interim rule.
This definition is in accordance with
the Low-Income definition found in the
CDFI Program regulations at 12 CFR
1805.104(ee). The CDFI Fund selected a
definition of Low-Income that is: (i) a
standardized definition that is widely
understood within the CDFI industry;
(ii) a definition that the CDFI Fund can
independently verify because the CDFI
Fund has collected data under this
definition over the past 10 years; (iii)
more inclusive and allows for more
Low-Income areas to comply with the
CDFI Bond Guarantee Program; and (iv)
consistent with the eligibility criteria for
other CDFI Fund programs.
(2) Underserved Rural Areas
Regarding the term Underserved Rural
Areas, the majority of comments
suggested a definition consistent with
the definition of Investment Area or
Targeted Population set forth in the
CDFI Program regulations (12 CFR
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1805.104 (dd) and (kk), respectively).
The majority of comments suggested
using the U.S. Department of
Agriculture (USDA) definition of Rural
Areas. Other comments suggested that
Rural Areas should be defined using the
Federal Financial Institutions
Examination Council definition for nonmetro areas, and that the CDFI Fund
should include Colonias in the
definition of Rural Areas even when
they otherwise fall within Metropolitan
Statistical Areas (MSAs). Other
suggestions included using: all nonMSA or HUD Fair Market Rent areas;
the new Rural-Urban Commuting Area
Codes definition established by the
Office of Rural Health Policy; or the
2008 Farm Bill definition of
Substantially Underserved Trust Areas.
The CDFI Fund’s Response:
The CDFI Fund has adopted the
definition of Underserved Rural Area
that is forth in section 1808.102 of the
interim rule. This definition is
consistent with the definition of
Investment Area as used in the CDFI
Program (at 12 CFR 1805.104(dd)) and
the definition of non-metropolitan as
used in the New Markets Tax Credit
Program. The CDFI Fund selected a
combined definition of Underserved
Rural Area because it is: (i) A
standardized definition that is widely
understood within the CDFI industry;
(ii) a definition that the CDFI Fund can
independently verify because the CDFI
Fund has collected data under these
definitions over the past 10 years; (iii)
more inclusive and allows for more
Low-Income areas to comply with the
CDFI Bond Guarantee Program; and (iv)
consistent with the eligibility criteria for
other CDFI Fund programs.
B. Use of Funds
The Act requires that Bond Proceeds
be used to make loans to Certified CDFIs
for Eligible Purposes.
(1) Eligible Uses of Bond Proceeds
The CDFI Fund requested comments
regarding the authorized uses of Bond
Proceeds to finance Bond Loans.
Specifically, comments were invited
regarding any limitations on the types of
Bond Loans to be financed, limitations
on the percentage of Bond Loans that
could be used to refinance outstanding
loans, and any other restrictions that the
CDFI Fund should impose on the Bond
Loans such as interest rate and fee
restrictions.
The majority of comments were not in
favor of limitations on the types of Bond
Loans that can be financed with the
Bond Proceeds, especially when the
Bond Loans meet the provisions of the
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Act and are similar in purpose to those
that are permissible under other
programs, such as the Financial
Assistance Component of the CDFI
Program.
The majority of comments indicated
that there should not be any limits on
the percentage of Bond Loans that can
be used to refinance outstanding loans
with the Bond Proceeds. A few
comments suggested that refinancing
should be limited to 25 or 50 percent so
as to encourage focus on new projects.
Some comments suggested that any
refinanced loans should meet minimum
quality standards and should be nondelinquent in order to be refinanced
with Bond Proceeds.
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The CDFI Fund’s Response:
Bond Proceeds must be used by the
Qualified Issuer to finance or Refinance
loans to Eligible CDFIs for Eligible
Purposes as set forth in sections
1808.301 and 1808.302 of the interim
rule. The CDFI Fund will not limit the
amount of Bond Proceeds that the
Qualified Issuer can use to Refinance
loans. The Qualified Issuer must have a
Capital Distribution Plan with the
requisite Eligible CDFIs configured to
on-lend the Bond Loans to Secondary
Borrowers. Eligible CDFIs must on-lend
the Bond Loans as Secondary Loans to
Secondary Borrowers consistent with
the Secondary Loan Requirements
established by the CDFI Fund and
defined in section 1808.102. The
Secondary Loans must demonstrate a
repayment source and collateral
provisions consistent with the
Secondary Loan Requirements.
(2) Eligible Uses of Bond Loan Proceeds
The CDFI Fund requested comments
on the use of Bond Loan proceeds by
CDFIs: specifically, the authorization of
revolving loan funds; the permissibility
of loan purchases with Bond Proceeds;
and any other restrictions that the CDFI
Fund should impose.
The majority of comments indicated
that eligible Bond Loan purposes should
include: (i) Capitalization of revolving
loan funds; (ii) capitalization of equity
positions for regulated institutions; and
(iii) loan loss reserves, debt service
reserves, and/or sinking funds in
support of a Federally guaranteed bond.
Comments showed unanimous
support for permitting loan proceeds to
be used to purchase loans from other
CDFIs. Comments also indicated that
the purchase of loans is an important
liquidity and aggregation mechanism
and should be encouraged in order to
increase capital flows in the CDFI
industry. Suggested restrictions
included restricting purchases to loans
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made after the enactment date of the
Act, and requiring that the majority of
loan purchase proceeds should be used
for community development activities.
The CDFI Fund’s Response:
The CDFI Fund selected eligible uses
for the Bond Loan proceeds that are
consistent with the eligible uses of
funds in the CDFI and NACA Programs
and the Act. Bond Loan proceeds must
be used for Eligible Purposes that
include (i) The capitalization of Loan
Loss Reserves in an amount that is up
to five percent of the par amount of the
Bond Loan; (ii) the financing or
Refinancing for community or economic
development purposes described in 12
U.S.C. 4707 (b), which includes
community or economic development
purposes in Low-Income Areas or
Underserved Rural Areas; (iii) prepaying
one monthly installment of Bond Loan
payments, and (iv) paying Bond
Issuance Fees. The CDFI Fund included
the capitalization of Loan Loss Reserves
as an Eligible Purpose with the
provision that Eligible CDFIs must
obtain a Principal Loss Collateral
Provision as collateral for this Eligible
Purpose. Additional limitations, special
rules, procedures and restrictions will
be specified in the applicable Notice of
Guarantee Availability (as described in
section 1808.400 of the interim rule), as
well as the Agreement to Guarantee,
Bond Documents, and Bond Loan
documents.
(3) Bond Proceeds Deployment;
Relending Account; Risk-Share Pool
Pursuant to the Act, Qualified Issuers
are required to use not less than 90
percent of principal amount of a Bond
(other than cost of Bond Issuance Fees)
to make loans within one year after the
Bond Issue Date. Not more than 10
percent of the maximum principal
amount of a Bond may be held in a
Relending Account which may be made
available for additional loans for
Eligible Purposes. Each Eligible CDFI
must contribute to a Risk-Share Pool
equal to three percent of the principal
amount of the Bond. The CDFI Fund
requested comments regarding the 90
percent loan requirement, use of the
Relending Account, scope of the RiskShare Pool, and other measures that
should be taken to minimize the risk of
loss to the Federal Government.
Commentators suggested that
Qualified Issuers may face challenges
disbursing Bond Loans to CDFIs equal
to 90 percent of the Bond principal
within one year. In their comments,
they cited that CDFI business models
often provide binding permanent loan
commitments to small businesses and
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entities that engage in construction and
development financing. CDFIs lend to
these entities under a total commitment
structure that includes draws on an as
needed basis. In addition, commentators
indicated that a one-year deployment
requirement for 100 percent of Bond
Loans would require: (1) CDFIs to have
an actual pipeline of loans; (2)
immediate funding availability for the
pipeline of loans; and (3) CDFIs to close
quickly on the loans. Commenters
indicated that it would be impractical
for CDFIs to present an actual pipeline
as part of the Capital Distribution Plan,
but to instead require the Qualified
Issuer to demonstrate a CDFI’s intended
versus actual pipeline of loans. Under a
one-year deployment rule, CDFIs would
face the undesirable prospect of having
to develop a new financing program
hastily and then terminate it
prematurely. Commentators also
suggested that most Qualified Issuers
would be able to close Bond Loan
commitments within one year of the
Bond Issue Date but would require a
period longer than one year, depending
upon the end-borrowers’ needs, to
disburse the Bond Loan funds.
The majority of commentators stated
that the Relending Account should be
used to absorb and relend prepayments,
permit early refinancing, and facilitate
maturities shorter than the Bond
duration. Some suggested that the
Relending Account should be used for
Bond payments if a default occurs, and
that the 10 percent Relending Account
should be calculated on a rollingaverage basis.
Strong opinions were expressed
against interest rate increases or
requiring specific restrictions,
covenants, or conditions not articulated
in the statutory provisions. Some
comments were in favor of requiring a
larger Risk-Share Pool. Many comments
suggested a variety of forms of
supplemental credit enhancement. A
‘‘one size fits all’’ approach was not
endorsed and several suggestions were
made, including: the purchase of
insurance; collateral liens; increased
rates on end borrowers; and a
‘‘repurchase structure’’ where
delinquent loans in an asset-backed
portfolio were replaced after 180 days.
The majority of the comments were in
favor of allowing the Qualified Issuer to
set aside the three percent from the
Bond Proceeds for financing of the RiskShare Pool. Some commentators
suggested that they favored flexible
systems allowing for various funding
streams, e.g., surety or escrow from the
issuer pending approval of application,
third party funding, or cash flows from
investment.
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The CDFI Fund’s Response:
The CDFI Fund will require the
Qualified Issuer to execute Bond Loan
agreements for not less than 100 percent
of the Bond principal on the Bond Issue
Date. If the Eligible CDFI uses Bond
Loan proceeds to make Secondary
Loans, the Eligible CDFI must execute
Secondary Loan documents (in the form
of promissory notes) with Secondary
Borrowers, as follows: (i) not later than
12 months after the Bond Issue Date,
Secondary Loan documents
representing at least 50 percent of such
Eligible CDFI’s Bond Loan proceeds
allocated to Secondary Loans, and (ii)
not later than 24 months after the Bond
Issue Date, Secondary Loan documents
representing 100 percent of such
Eligible CDFI’s Bond Loan proceeds
allocated to Secondary Loans (excluding
any amounts used for payment of Bond
Issuance Fees pursuant to section
1808.304(b)).
The CDFI Fund defines the Relending
Account and the Capital Distribution
Plan in section 1808.102 of the interim
rule.
The Risk-Share Pool, described in 12
U.S.C. 4713a(d), must be funded by the
Eligible CDFIs. The CDFI Fund will not
allow the Bond Proceeds, or funds
received from other CDFI Fund
programs, to be used to fund the RiskShare Pool. The CDFI Fund defines the
Risk-Share Pool in section 1808.102 of
the interim rule.
If the CDFI Fund determines that
there is a need for protections to
mitigate the risk of loss to the Federal
Government, the CDFI Fund may
require in the terms and conditions of
the Guarantee that the Qualified Issuer
implement various tools, in addition to
the Risk-Share Pool, to compensate for
risk which may include, but not be
limited to, requiring the Eligible CDFI to
provide for third-party Credit
Enhancements.
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C. Guarantee Provisions
The Act provides for a 100 percent
guarantee for bonds issued as part of a
Bond Issue under the CDFI Bond
Guarantee Program. Consistent with the
Office of Management and Budget
(OMB) Circular A–129 (Policies for
Federal Credit Programs and Non-Tax
Receivables), these bonds will be
purchased by the Federal Financing
Bank (FFB). The CDFI Fund requested
comments regarding potential loss
remedies prior to the Bond Purchaser
seeking reimbursement under the
Guarantee, as well other any other
terms, conditions, or Bond structure
requirements that should be imposed to
protect the taxpayer.
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The majority of comments stated that
the CDFI Fund should work with the
Qualified Issuer, aggregators (designated
entities acting on behalf of the Qualified
Issuers), and originators and Servicers of
loans to exercise all rights and remedies
available under law before calling the
Guarantee. Some comments suggested
that, for non-performing assets
underlying a Bond, the CDFI Fund
should consider using special servicers
to deal with these assets. Recommended
remedies include the substitution of
non-performing assets, liquidation of
underlying collateral, liquidation of
risk-share and supplemental credit
reserves, and the exercise of recourse.
The majority of comments stated that
the CDFI Fund should not set specific
guidelines for the structure of the
Bonds. It was suggested instead that the
CDFI Fund should allow the
marketplace to encourage the
development of models for structuring
the Bonds. Commentators recommended
that the CDFI Fund require Qualified
Issuers to issue Bonds of $100,000,000
or more, but allow them to make
incremental drawdowns of Bond
Proceeds. Some comments suggested
that Bonds could be issued in smaller
increments as part of one application, as
long as each Guarantee covered no less
than $100,000,000 of Bonds.
The CDFI Fund’s Response:
The CDFI Fund defines Verifiable
Losses of Principal, Interest, and Call
Premium in section 1808.102 of the
interim rule. When the Qualified Issuer
has delinquent payments, the CDFI
Fund and the Guarantor will exercise all
available rights and remedies to protect
the Federal Government’s interests.
With regard to the structure of the
Bond, the CDFI Fund will allow a
Qualified Issuer to utilize multiple Bond
Loans to CDFIs to meet the
$100,000,000 minimum Guarantee
requirement of the Act. However, each
Bond Loan must be a minimum of
$10,000,000.
D. Eligible Entities
The Act defines Eligible CDFI at 12
U.S.C. 4713a(a)(1) as a CDFI certified by
the Secretary that has applied to the
Qualified Issuer for, or been granted by
a Qualified Issuer, a loan under the
program, and authorizes the CDFI Fund
to determine which entities may serve
as Qualified Issuers and Master
Servicer. The CDFI Fund requested
comments regarding the criteria that
should be used to approve entities to
participate in the CDFI Bond Guarantee
Program. Specifically, the CDFI Fund
solicited comments on the number of
Qualified Issuers and Master Servicers
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8299
that should be approved under the CDFI
Bond Guarantee Program, as well as any
eligibility criteria that should be applied
to Eligible CDFIs beyond CDFI
certification.
The majority of commentators
indicated that they were not in favor of
the CDFI Fund requiring only one
Qualified Issuer for all Bonds issued
under the CDFI Bond Guarantee
Program. Respondents stated that this
requirement would be an unnecessary
limitation that would prevent multiple
CDFIs from serving as Qualified Issuers.
Comments suggested, however, that it
may be effective to have one Qualified
Issuer issue most of the Bonds initially.
There were mixed views regarding
whether the CDFI Fund should permit
an entity that is not a Certified CDFI to
apply for CDFI certification
simultaneously with submission of a
Guarantee Application and a Capital
Distribution Plan. The majority of
commentators stated that only a CDFI
that has been designated as a Certified
CDFI prior to the applicable Guarantee
Application deadline should be allowed
to participate in the program. In
contrast, some commentators stated that
the CDFI Fund should permit noncertified entities the ability to apply to
the CDFI Bond Guarantee Program
while these entities pursue CDFI
certification. The majority of
commentators stated that the CDFI Fund
should allow all existing CDFIs (or their
designees) that are Certified CDFIs in
good standing to apply to the CDFI
Bond Guarantee Program. Respondents
were consistent in stating that a CDFI
that applies to the CDFI Bond Guarantee
Program should demonstrate strong
financial and capital positions, as well
as a significant and sustained track
record of economic development in
Low-Income communities. Many
respondents requested that the CDFI
Fund require that Eligible CDFIs be
certified by the CDFI Fund for a period
of at least two to three years.
The majority of commentators
indicated that CDFIs should be allowed
to service their own Bond Loans and the
CDFI Fund should not require one
Servicer for all Bonds issued under the
CDFI Bond Guarantee Program. The
comments suggested that the CDFI Fund
should instead choose to limit the
number of Servicers in order to keep
program costs low. Comments were in
favor of the CDFI Fund requiring the
Master Servicer and Servicers to have a
track record of providing similar
services, and they stated that a key
factor in determining CDFI Bond
Guarantee Program success will be the
level and skill of the Servicers
responsible for remitting principal and
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interest payments on the Bonds. It was
proposed that the Master Servicer
should be rated by a national rating
agency and should have broad
experience in servicing community
development needs. In addition, some
commentators stated that the CDFI Fund
should pre-qualify the Master Servicer
and make it known to CDFIs prior to
submission of a Guarantee Application.
Respondents were in favor of a CDFI
being allowed to serve as its own
Servicer, and they cited that the unique
asset and/or borrower characteristics
provide strength to CDFIs with respect
to their loan servicing capabilities.
Comments also suggested that the CDFI
Fund should recognize a consortium of
non-profit entities, led by a certified
CDFI, as an eligible applicant.
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The CDFI Fund’s Response:
The CDFI Fund has defined the
criteria for Qualified Issuers and the
Master Servicer in section 1808.200 and
section 1808.606, respectively, of the
interim rule. The CDFI Fund considered
the servicing capabilities of the CDFI
industry when defining the criteria for
Qualified Issuers. As a result, the CDFI
Fund will allow the Qualified Issuer to
provide, in its Qualified Issuer
Application, information on the
proposed Servicer for each Bond Issue.
In response to commenters request to
keep the program costs low, the CDFI
Fund will only allow one Master
Servicer/Trustee for the CDFI Bond
Guarantee Program.
The CDFI Fund may also select a
Designated Bonding Authority (DBA) to
serve as a Qualified Issuer for CDFIs
seeking Bond Loans that do not wish to
designate their own Qualified Issuer
and/or that cannot alone prepare a
Capital Distribution Plan that meets the
requirements for participation in the
CDFI Bond Guarantee Program. A DBA
will be prequalified as meeting the
requirements for Qualified Issuers by
the CDFI Fund; however, a Guarantee
Application submitted by a DBA will
not receive any preference in the
selection process. The qualifications for
a DBA are described in section 1808.201
of the interim rule. The DBA will be
selected in accordance with section
1808.502, which requires interested
parties to submit a Qualified Issuer
Application in response to the
applicable Notice of Guarantee
Availability.
Eligible CDFIs must be certified by the
CDFI Fund and must meet the
requirements set forth in section
1808.202 of the interim rule.
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E. Capital Distribution Plan
There were multiple
recommendations as to what applicants
should be required to submit in their
Capital Distribution Plans. Comments
were consistent in suggesting that the
CDFI Fund should require applicants to
detail (in a Capital Distribution Plan)
their fixed and ongoing costs of
deploying capital, including a detailed
breakdown of the uses of funds, which
would entail the 90 percent or greater
portion of Bond Proceeds used to make
Bond Loans for Eligible Purposes and
managing a multitude of CDFI entities.
In addition, respondents suggested that
a detailed breakdown of uses of the
remaining portion of Bond Proceeds
should be submitted. Comments stated
that the CDFI Fund should not impose
a limit on the number of Bonds and
Guarantees for which Qualified Issuers
are allowed to apply or qualify;
however, it was suggested that the CDFI
Fund implement the CDFI Bond
Guarantee Program in a broad manner
that would potentially mitigate a
concentration among too small a
number of participants. In general,
commentators recommended that, in
their respective Capital Distribution
Plans, applicants should demonstrate an
intended pipeline of underlying assets
as well as the ability to service the Bond
based on the expected terms and
conditions of the assets in the pipeline.
Respondents were consistent in stating
that the CDFI Fund should not set
minimum underwriting criteria for
borrowers.
The CDFI Fund’s Response:
The CDFI Fund defines Capital
Distribution Plan in section 1808.102 of
the interim rule. The CDFI Fund will
require the Qualified Issuer to execute
Bond Loan agreements for no less than
100 percent of the Bond Proceeds on the
Bond Issue Date. If the Eligible CDFI
uses Bond Loan proceeds to make
Secondary Loans, the Eligible CDFI
must execute Secondary Loan
documents (in the form of promissory
notes) with Secondary Borrowers as
follows: (i) not later than 12 months
after the Bond Issue Date, Secondary
Loan documents representing at least 50
percent of such Eligible CDFI’s Bond
Loan proceeds allocated for Secondary
Loans, and (ii) not later than 24 months
after the Bond Issue Date, Secondary
Loan documents representing 100
percent of such Eligible CDFI’s Bond
Loan proceeds allocated for Secondary
Loans (excluding any amounts used for
payment of Bond Issuance Fees
pursuant to section 1808.304(b)).
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A Qualified Issuer may apply for and
receive more than one Guarantee under
the CDFI Bond Guarantee Program;
provided, however, that the Qualified
Issuer must demonstrate in subsequent
Guarantee Applications that all prior
Bonds have been issued and executed as
Bond Loans in accordance with the
applicable Guarantee Application,
Capital Distribution Plan, and Bond
Documents.
F. Accountability of Qualified Issuers
Comments indicated a considerable
push for allowing flexibility with regard
to mandating the performance outcomes
of the Qualified Issuer. Comments were
in favor of accountability measures,
including the submittal of an annual
report, but did not indicate the need for
any additional reporting. In addition,
commentators agreed that all risk share,
credit, and liquidity reserves should be
included in calculating the annual
percentage of Bond principal used to
make Bond Loans. Comments expressed
a key interest in ensuring that the CDFI
Fund shows consistency across its
various program areas. Some
respondents expressed a need for the
CDFI Fund to provide continuous
training opportunities on compliance
and reporting requirements for the CDFI
Bond Guarantee Program.
The CDFI Fund’s Response:
Subsequent to publication of the
interim rule, the CDFI Fund will
provide outreach and training on the
application process, compliance, and
reporting requirements as defined in
subsection 1808.619 for Qualified
Issuers and Eligible CDFIs. To be
eligible to participate in the CDFI Bond
Guarantee Program, the CDFI Fund will
require Qualified Issuers and Eligible
CDFIs applicants that are prior
awardees/allocatees of the CDFI Fund to
be compliant under their assistance,
allocation, or award agreements under
all other CDFI Fund programs at the
time of submission of the Guarantee
Application. The CDFI Fund will not
include the three percent Risk-Share
Pool or any additional reserves in
calculating the requirements of the
Capital Distribution Plan.
G. Prohibited Uses
Commentators generally did not
express a desire for additional mandates
regarding prohibited uses.
Commentators did advise, however, that
the CDFI Fund adopt, as a model, the
rules of the Financial Assistance
Component of the CDFI Program, which
permit a wide range of financing
activities and allow for flexibility and
innovation.
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The CDFI Fund’s Response:
The CDFI Fund selected Eligible
Purposes that are consistent with the
eligible uses of funds under the CDFI
Program, NACA Program, and the Act.
Uses of Bond Proceeds must be
consistent with Eligible Community or
Economic Development Purposes
defined in 12 U.S.C. 4713a(a)(2) and
sections 1808.301 and 1808.302 of the
interim rule.
The CDFI Fund prohibits certain uses
of the Bond Proceeds as set forth in 12
U.S.C. 4713a(c)(5) and section 1808.309
of the interim rule. The CDFI Fund
prohibits the use of Bond Proceeds to
fund the Risk-Share Pool to further
incentivize Eligible CDFIs to perform
quality underwriting of Secondary
Loans and repayment of Bond Loans.
Other risk mitigations include Eligible
CDFIs providing collateral and full
recourse obligations to receive Bond
Loans.
H. Servicing of Transactions
Commentators expressed an interest
in limiting the duties of the CDFI Fund
to the general administration and
management of the CDFI Bond
Guarantee Program, and stated that the
CDFI Fund should not be involved in a
Bond transaction. There were split
opinions regarding the requirement that
each Qualified Issuer have a designated
Program Administrator.
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The CDFI Fund’s Response:
The CDFI Fund addresses the
aforementioned concerns in the interim
rule, which delineates the roles of the
CDFI Fund, the Guarantor, Program
Administrators, and Qualified Issuers.
The CDFI Fund will issue a solicitation
to select the Master Servicer/Trustee,
which will serve as a fiduciary,
maintain funds and accounts, serve as
the Special Servicer, oversee the
Servicers, provide loan monitoring and
reporting, and perform the duties
described in 12 U.S.C. 4713a(f)(4) and
section 1808.606 of the interim rule.
I. General Compliance
The majority of comments indicated
that annual financial statements and a
report of asset or portfolio performance
should be collected and reviewed by the
Master Servicer. A range of
recommendations were made for the
types of reports that should be
submitted, including: institution level
reports; disbursement reports; and a
report verifying that Bond Proceeds are
used for Eligible Purposes. With respect
to the Act’s mandate regarding
repayment of Bonds, respondents stated
that there should be a cure period of 90
days before action is taken. After the 90-
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day period, part of the Risk-Share Pool
should be released to meet Bond terms
in a way that preserves the outstanding
Bond characteristics, such as coupon
and term. Further, it was recommended
that the CDFI Fund should retain the
right to extend the cure period as
deemed necessary and appropriate.
Comments advised that before the CDFI
Fund imposes penalties on a Qualified
Issuer for noncompliance, the CDFI
Fund should work collaboratively to
resolve the issue and have a menu of
additional options available for
resolution. Suggested options included
written notification, suspension from
participation, and requiring repayment
of the Bond, depending on the
seriousness of the infraction and
circumstances. These actions should be
undertaken after a 90-day cure period.
The CDFI Fund’s Response:
Qualified Issuers must provide
information requested by the CDFI Fund
as described in section 1808.619 of the
interim rule and be subject to periodic
on-site audits by the CDFI Fund or its
designee as needed to determine
compliance with the requirements of the
CDFI Bond Guarantee Program. The
CDFI Fund will not exempt the
Qualified Issuer from complying with
all applicable Federal, State, and local
laws, regulations, ordinances, OMB
Circulars and Executive Orders. Bond
payments must be made in accordance
with the terms and conditions of the
underlying Bond documents. Qualified
Issuers will be required to include
disclosure statements in all Bond Loan
documents that identify the obligations
of the parties to comply with the
applicable statutes and regulations.
J. General Comments
The majority of comments stated that
CDFI Bond Guarantee Program rules
should be written to allow for maximum
program flexibility. This includes a
wide variety of issues such as: Multiple
structures (special purpose entities and
single-issuers); allowance of proceeds
for lending and equity capital, loan loss
reserves, and refinancing; flexible
definitions of Eligible Purposes;
allowing revolving loan funds in the
program structure that meet the 90
percent loan requirement; and allowing
for smaller tranches of issuances as part
of a total $100,000,000 package.
Respondents stated that the CDFI Bond
Guarantee Program regulations should
foster immediate operability in the
interest of time to expedite the issuance
of Bonds. In addition, comments stated
that requirements such as reporting and
eligibility should align with other CDFI
Fund programs such as the Financial
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Fmt 4701
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8301
Assistance Component of the CDFI
Program.
Several respondents raised a concern
about the need to prepare CDFIs for
access to mainstream financial
institutions and capital markets. With
respect to rulemaking, commentators
stated that the regulations should not
carry limiting constraints or be
unnecessarily complicated such as
requiring burdensome credit
enhancements, agency credit ratings, or
preset underwriting criteria.
The CDFI Fund’s Response:
The CDFI Fund agrees that the CDFI
Bond Guarantee Program has the
potential to provide expansive
opportunity by offering low-cost capital
to CDFIs. However, the CDFI Fund
recognizes the need to balance
flexibility for program participants
against the need to mitigate risk to the
taxpayer, and stay within the confines
of various existing statutes, regulations,
and guidance documents including, but
not limited to, the Riegle Community
Development and Regulatory
Improvement Act of 1994, the Small
Business Jobs Act of 2010, the Federal
Credit Reform Act of 1990, as amended,
and OMB Circular A–129 (Policies for
Federal Credit Programs and Non-Tax
Receivables). The CDFI Fund will
develop and promulgate Bond Loan
Requirements and Secondary Loan
Requirements.
V. Rulemaking Analysis
A. Executive Order (E.O.) 12866;
Regulatory Impact Analysis
It has been determined that the
interim rule of the CDFI Bond Guarantee
Program is a significant regulatory
action as defined in Executive Order
12866 in that the program will result in
an annual effect of $100 million of more
on the economy. Accordingly, the
interim rule has been reviewed by the
Office of Management and Budget. The
Regulatory Impact Analysis prepared by
the CDFI Fund for the interim rule is
provided below.
1. Description of Need for the
Regulatory Action
The CDFI Bond Guarantee Program
was authorized by the Small Business
Jobs Act of 2010 (Pub. L. 111–240) (the
Act), passed by Congress and signed
into law by the President on September
27, 2010. Sections 1134 and 1703 of the
Act provide authority to the Secretary of
the Department of the Treasury to
establish the program by regulation,
which will be administered by the CDFI
Fund, a wholly owned government
corporation within the U.S. Department
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of the Treasury, pursuant to authority
delegated by the Secretary of the
Treasury.
The Act authorizes the Secretary to
guarantee the full amount of Bonds,
including the principal, interest, and
call premiums, with terms not to exceed
30 years, issued to finance or refinance
loans for Eligible Community or
Economic Development Purposes. The
Bond Issues will support CDFI lending
and investment in Investment Areas by
providing a source of low-cost, longterm capital to CDFIs. The Act provides
that the Secretary of the Treasury will
not issue more than ten Guarantees in
any calendar year. No Guarantee
amount may be less than $100,000,000,
provided the total principal amount of
guaranteed Bond Issues outstanding for
any one fiscal year may not exceed $1
billion.
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2. Provision—Affected Populations
The CDFI Fund was established
through the Riegle Community
Development and Regulatory
Improvement Act of 1994 (Pub. L. 103–
325) for the purpose of promoting
economic and community development
through investment in and assistance to
CDFIs. The two target populations
served by the CDFI Fund that will be
affected by the CDFI Bond Guarantee
Program are (i) Certified CDFIs and (ii)
rural and urban Low-Income
communities served by Certified CDFIs
throughout the United States.
Certified CDFIs are specialized,
community-based financial institutions
that serve rural and urban Low-Income
communities or work in economically
distressed areas, often operating in
market niches that may be underserved
by traditional financial institutions.
Only financial institutions certified by
the CDFI Fund can receive financial
assistance awards through the CDFI
Program and the NACA Program.
Certified CDFIs include depository
institutions such as community
development banks, thrifts, and credit
unions; and non-depository institutions
such as loan and venture capital funds.
Certified CDFIs provide a wide range of
financial products and services in LowIncome Areas.1 While the types of
products made available are generally
similar to those provided by mainstream
financial institutions (such as small
1 The terms Low-Income and Low-Income Area
are defined in section 1808.102 of the interim rule.
These definitions may be different from those used
in the economic studies cited hereafter. For specific
definitions related to the studies, please refer to the
cited articles.
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business lending and lending for
community facilities and commercial
real estate development), Certified
CDFIs often lend to and make equity
investments in markets that may not be
served by mainstream financial
institutions. In addition, Certified CDFIs
may offer rates and terms that are more
flexible to Low-Income borrowers.
Certified CDFIs also provide services
that help ensure that credit is used
effectively, such as technical assistance
to small businesses, and home buying
and credit counseling to consumers.
As of April 2012, there were over 980
Certified CDFIs (including Certified
CDFI banks and their Certified CDFI
bank holding companies) that provide
financial products and services to
underserved populations and distressed
communities in the United States. A
thorough analysis was conducted of a
subset of 904 Certified CDFIs, excluding
bank holding companies, to compile
consistent asset data on this population,
which is reported below. These 904
Certified CDFIs are financial institutions
that have average total assets of $55.6
million (although average asset size
varies by institution type).
a. Community development loan
funds (CDLFs) constitute about 66
percent of Certified CDFIs and have
average assets of about $19.9 million.
CDLFs are usually nonprofits that
provide financing and development
services to businesses, organizations
and individuals in Low-Income urban
and rural areas. CDLFs can be further
categorized based on the type of clients
served, such as microenterprises, small
businesses, housing, and community
service organizations (e.g., health care
providers, charter school operators).
b. Community development credit
unions (CDCUs) constitute about 22
percent of Certified CDFIs and have
average assets of $66.9 million. CDCUs
are nonprofit cooperatives owned by
members that promote ownership of
assets and savings and provide
affordable credit and retail financial
services to Low-Income people.
c. Community development banks
and bank holding companies constitute
about nine percent of Certified CDFIs
and have average assets of $298.3
million. CDFI banks provide capital to
rebuild economically distressed
communities through targeted lending
and investment and the provision of
financial services to community
residents and business owners.
d. Community development venture
capital funds constitute about three
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percent of all Certified CDFIs, have
average assets of $9.7 million, and
include both for-profit and nonprofit
organizations that provide equity and
debt-with-equity features for businesses
in distressed communities.
A preliminary analysis conducted by
the CDFI Fund shows that Certified
CDFIs that are large enough to deploy at
least $10 million in new lending to
Low-Income communities are the most
likely participants in the CDFI Bond
Guarantee Program. The rationale is that
only larger CDFIs will be able to absorb
and deploy $10 million in new capital.
In particular, non-profit CDFI loan
funds are expected to be the primary
participants in the CDFI Bond
Guarantee Program.
a. Analysis of CDFI Fund awardees.
First, the CDFI Fund used its
Community Investment Impact System
(CIIS), which collects data from CDFIs
that have received awards from the
CDFI Fund. CDFI Program and NACA
Program awardees are required to report
total portfolio and financial data for
three years. A total of 68 Certified CDFI
loan funds were identified that provided
consistent data for a five year period
from 2006 to 2010 on assets, new
lending, and type of lending. The results
showed that a total of 59 CDFI loan
funds out of the 68 originated more than
$10 million in loans. These 59 loan
funds, that annually originated more
than $10 million in loans, had assets
that ranged from $25 million to nearly
$400 million. As a result, a cutoff point
of a minimum of $25 million in assets
was established as a preliminary
estimate of the threshold to participate
in the CDFI Bond Guarantee Program.
Due to data limitations, this estimate is
based on a sample of CDFI awardees
and not on the total universe of Certified
CDFIs. However, given the lack of data
on non-awardee Certified CDFIs, it is
possible there are eligible CDFIs below
the $25 million threshold capable of
participating in the CDFI Bond
Guarantee Program.
b. Analysis of CDFI Fund Certified
CDFIs. Second, the CDFI Fund
certification database was used to query
the number and type of Certified CDFIs
that had assets over $25 million. A total
of 243 Certified CDFIs have assets over
$25 million, including 77 CDFI banks,
74 credit unions, 91 loan funds, and one
venture capital fund. This group is a
sample of potential participants in the
CDFI Bond Guarantee Program.
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8303
TABLE 1—CDFIS WITH MORE THAN $25 MILLION IN ASSETS
CDFI type
Share
%
Count
Sum of assets
Share of
assets
%
Average assets
Minimum asset
size
Maximum asset
size
Bank or Thrift ...........
Credit Union .............
Loan Fund ................
Venture Capital Fund
77
74
91
1
32
30
37
0
$24,705,263,619
12,589,364,746
9,073,961,136
59,151,038
53
27
20
0
$320,847,579
170,126,551
99,713,859
59,151,038
$26,655,000
26,456,363
25,379,706
59,151,038
$2,144,987,000
1,623,228,958
1,424,547,537
59,151,038
Grand Total .......
243
100
46,427,740,539
100
191,060,661
25,379,706
2,144,987,000
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Source: CDFI Fund Community Investment Impact System (CIIS) and Certification Database.
a. Targeted Populations. In general,
Certified CDFIs primarily serve LowIncome communities and Low-Income
targeted populations. A Certified CDFI’s
Investment Area is defined as a
geographic unit (state, county, census
tract, block group, Indian/Native areas),
or as contiguous geographic units
entirely located within the United States
that meets one of the following criteria:
(1) Has a population poverty rate of at
least 20 percent;
(2) has an unemployment rate 1.5
times the national average;
(3) for a Metropolitan Area, has a
median family income (MFI) at or below
80 percent of the greater of either the
Metropolitan or national Metropolitan
MFI;
(4) for a non-Metropolitan area, has an
MFI at or below 80 percent of the greater
of either the Statewide or national NonMetropolitan MFI;
(5) is wholly located within an
Empowerment Zone or Enterprise
Community; or
(6) has a county population loss
greater than or equal to 10 percent
between the two most recent census
periods for Metropolitan Areas or five
percent over last five years for NonMetropolitan areas.
Under these criteria, there are 27,275
census tracts (41 percent) that qualify as
CDFI investment areas out of 66,285
total census tracts in U.S. Of these,
22,360 are Metropolitan census tracts
and 4,915 Non-Metropolitan census
tracts. There are 269 counties that
qualify as a result of the combined
impact of the population loss and
outmigration criteria. Based on the most
recent three-year of reporting by CDFIs
awardees, about 20 percent of eligible
census tracts are served; however, no
transactional lending and investment
data is available from Certified nonawardee CDFIs and therefore no
estimates of lending in target markets
can be provided for four-fifths of
Certified CDFIs.
However, it is noteworthy that CDFI
investment areas and target markets are
highly correlated with the distressed
and underserved areas as defined in the
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Community Reinvestment Act.2 In
general, Certified CDFIs provide
financial products and services in areas
that are historically underserved by
mainstream depository institutions.
b. Financial products offered by
CDFIs. According to the CDFI Fund
Agency Financial Report for Fiscal Year
2012, CDFIs originated over $1.3 billion
in loans in 2011. Of these, 15.6 percent
were commercial real estate
originations, which included
investments in charter schools and
community facilities such as health
clinics, employment and training
facilities, and centers that provide
services for low-income children and
youth. In addition, 28 percent of these
annual originations supported small
businesses and microenterprises,
including support for business
incubators. In 2011, CDFIs also financed
over 24,000 affordable housing rental
units. The majority of these investments
were located in very Low-Income
communities where lending for
community infrastructure is limited.
3. Description of the problem.
The availability of long-term debt and
equity capital for CDFIs, particularly
non-profit loan funds, is one of the
major structural issues facing the CDFI
industry. Certified CDFIs face
challenges accessing long term capital to
support their lending and investment;
such challenges are related to broader
structural impediments faced by LowIncome communities in accessing
affordable and appropriate financial
services.
Certified CDFIs traditionally receive
grants, loans, and other forms of
financing from various sources, notably
banks incentivized by the Community
Reinvestment Act (CRA). However, that
capital tends to be short- or mediumterm, and expensive as compared to
products non-CDFI or for-profit lenders
can obtain.3 Lenders and investors to
2 https://www.ffiec.gov/craadweb/naaginfs.htm.
3 Charles Tansey, Michael Swack, Michael
Tansey, Vicky Stein. Capital Markets, CDFIs, and
Organizational Credit Risk, Carsey Institute,
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Certified CDFIs typically provide
Certified CDFIs with capital that has
maturities of ten years or less. As a
result, Certified CDFIs endure asset
liability mismatches when they offer
longer term lending products (i.e.,
mortgages) to their target borrowers.
According to an analysis by the
Carsey Institute at the University of New
Hampshire, which was prepared for and
funded by the CDFI Fund, ‘‘the lack of
long-term debt financing forces CDFIs to
[save cash] pushing down leverage and
giving the appearance that many
underleveraged CDFIs are not lending as
much as they could, thus neglecting
demand among its targeted
consumers.’’ 4 Certified CDFI loan funds
are generally not well leveraged,
possibly reflecting the cost of debt
available to them. Additionally, the
non-profit status of many CDFIs also
means that they do not enjoy the tax
benefits of debt leverage which forprofit financial institutions are able to
take advantage of. According to the
Carsey analysis, ‘‘[p]articularly among
loan funds, a large number of CDFIs
have very little leverage (i.e., they fund
themselves mainly through net assets,
not debt). The median CDFI loan fund
in 2009 was leveraged at just $1.10 in
liabilities for every $1 in net assets.
About eight percent of loan funds had
no liabilities whatsoever. Banks and
credit unions are typically leveraged at
a rate of 10:1 or more.’’ 5
The reasons behind the lack of access
to long-term debt available in capital
markets are complex; however, a
market-based approach focuses on one
key element: the risk of Certified CDFIs.
Capital markets typically rely on the
credit ratings by rating agencies to
determine the interest rate and terms of
University of New Hampshire, Durham, New
Hampshire, p. 37.
4 Michael Swack, Jack Northrup, and Eric
Hangen. CDFI Industry Analysis, Spring 2012.
Carsey Institute, University of New Hampshire,
Durham, New Hampshire, p. 15.
5 Michael Swack, Jack Northrup, and Eric
Hangen. CDFI Industry Analysis, Spring 2012.
Carsey Institute, University of New Hampshire,
Durham, New Hampshire, p. 10.
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an investment. According to Tansey et
al., the inability of credit rating agencies
to accurately assess credit risk of CDFIs
is due to: the absence of standardized
data of risk performance; the lack of
consistent audited financials limiting
the ability to discern assets, specifically
cash, available for repayment; the need
for the development of comparable
ratios to analyze financial health;
Certified CDFIs’ willingness to engage in
non-conventional lending; and, the
perceived risk of lending to Low-Income
communities. Such challenges result in
proposed investments to CDFIs that are
unrated or rated as below investment
grade, thus not attractive to the capital
markets.
a. Distributional issues in provision of
financial services in Low-Income Areas.
The risk of lending to Certified CDFIs
and ultimately to Low-Income
communities is steeped in the chronic
distributional gaps in the provision of
financial services and products to Rural
and urban Low-Income Areas of the
United States, thus contributing to
limited credit risk information for
mainstream financial institutions to
underwrite new activity in these
communities. The lack of credit
information for many Low-Income
households in addition to smaller loan
sizes typical of Low-Income
communities often results in higher
transaction costs for current lending. In
addition, the substantial lack of data
and higher costs in serving these
communities also inhibits the access to
long-term capital for CDFIs that serve
these communities.
In rural areas, lack of access also
stems from the more limited deal flows,
limited supporting infrastructure, and
the difficulty of providing oversight for
sparsely populated areas. Furthermore,
CDFI investments are often
characterized by the small scale of
individual transactions and the
perception of a high degree of risk.6
Using census panel data on
economically distressed areas,
persistent poverty has been located in
the same geographic areas for over half
a century, including the lower
Mississippi Delta, areas along the Rio
Grande, and traditional Native
American territories in the West.7 Many
households in persistent poverty
counties are ‘‘unbanked’’ and have little
6 Michael Swack, Jack Northrup, and Eric
Hangen. CDFI Industry Analysis. Spring 2012.
Carsey Institute, University of New Hampshire,
Durham, New Hampshire, p. 14. Available at https://
www.cdfifund.gov/docs/CBI/2012/
Carsey%20Report%20PR%20042512.pdf.
7 For a list of persistent poverty counties used by
the CDFI Fund, see https://www.cdfifund.gov/
what_we_do/persistentpoverty.asp.
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or no credit score information because
they may operate with cash in the
informal economy; many live in areas
characterized by poverty rates of more
than 20 percent. About three quarters of
persistent poverty areas reflect the
minority status of their populations,
showing a concentration of persistent
poverty, low incomes, and lack of
financial services in minority
communities. According to the
Economic Research Service (ERS) at the
U.S. Department of Agriculture (USDA),
of the 442 ‘‘high-poverty counties in
2000 (based on 1999 income), threefourths reflect the low income of their
racial and ethnic minorities and are
classified as Black, Hispanic, or Native
American high-poverty counties. In
these counties, either a majority of the
poor are Black, Hispanic, or Native
American, or it is only the high
incidence of poverty among these
minority groups that brings the county’s
overall rate above 20 percent. Of the
remaining fourth of high-poverty
counties, most (91 counties) are located
in the Southern Highlands of eastern
Kentucky, West Virginia, and parts of
Missouri and Oklahoma. In these areas,
the poor are predominantly nonHispanic Whites.’’ 8
b. Market failure. Rural and urban
Low-Income, very Low-Income, and
persistent poverty areas are underserved
by mainstream financial institutions and
lack access to investment, capital, and
credit. Low lending rates in these
communities create an information
deficit for assessing risk for individual
households and neighborhoods in
mortgage, business, and consumer credit
markets, and contribute to higher
transaction costs. Furthermore, credit
rationing can affect both Low-Income
communities and Certified CDFIs that
serve this market niche.
Market failures in the provision of
financial services to Low-Income areas
have been well-documented in the
academic literature (see Akerlof,
Stieglitz, Klausner, Richardson, Mills
and Lubuele).9 One market imperfection
8 See https://www.ers.usda.gov/Briefing/
incomepovertywelfare/povertygeography.htm.
9 (A) Akerlof, George A. 1970. ‘‘The Market for
Lemons: Quality Uncertainty and the Market
Mechanism.’’ The Quarterly Journal of Economics.
84 (3): 488–500. Akerlof argues that
underdeveloped areas, such as Low-Income and
persistent poverty areas, may remain undeveloped
due to the lack of information (such as the lack of
credit scores for households operating in the
informal economy) and the high costs of obtaining
accurate information on these credit risks.
According to Akerlof, ‘‘Credit markets in
underdeveloped areas often strongly reflect the
operation of the Lemons Principle.’’ In the Lemons
Principle, ‘‘bad cars drive out the good because they
sell at the same prices as the good cars.’’ In other
words, the perception of average higher risk in Low-
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is the inherently asymmetric
information between a lender and a
borrower. Klausner notes that
‘‘borrowers often know more about their
own risk of default than do lenders.
[* * *] When a bank makes a loan it
does so based on information regarding
the default risk of the borrower.’’ 10
Both targeted and mainstream
financial lending programs depend on
credit scores to assess risk to provide
financial services to their customers.
However, credit scores are often limited
in Low-Income communities due to the
low level of lending by mainstream
financial institutions in these
communities and the resulting lack of
information on the risk of default for
these loan products. In addition, LowIncome households may operate in the
informal economy and may not have
credit score information.
Credit rationing is likely to occur in
Low-Income Areas because generating
individual credit risk scores would be
too costly for lenders. Klausner and
Richardson note that because banks seek
to maximize their profit, they [and other
financial institutions] may be averse to
lending to Low-Income Areas due to the
low value of financial transactions and
the lack of credit score information to
assess the riskiness of loans.
Income Areas may prevent deserving borrowers
from accessing credit and capital from mainstream
lenders. However, non-traditional lenders such as
CDFIs are willing to conduct individual
underwriting and are able to enter these markets.
(B) Stiglitz, Joseph E., and Andrew Weiss. 1980.
Credit rationing in markets with imperfect
information. Princeton, N.J.: Econometric Research
Program, Princeton University.
(C) Klausner, Michael, ‘‘Market failure and the
Community Reinvestment Act: A market-oriented
alternative to the Community Reinvestment Act.’’
University of Pennsylvania Law Review, Vol. 143,
No. 5 (May 1995) pp. 1561–1593.
(D) Richardson, Christopher, ‘‘The Community
Reinvestment Act and the economics of regulatory
policy.’’ Fordham Urban Law Journal, Vol. 29, Issue
4, 2001, Article 11. Richardson argues that ‘‘low
levels of lending in low- and moderate-income
(LMI) areas result from the inability of rational
lending decisions made by profit-maximizing
lenders to achieve a socially optimal flow of credit
to LMI areas. The market failure occurs because the
marginal cost of a single lender acquiring the
information necessary to adequately assess risk and
identify profitable lending opportunities in LMI
areas outweighs the potential marginal benefit the
lender can expect to accrue. In the extreme case, if
no single lender will rationally decide to lend in the
area, and no loans will be made’’ (p. 1614).
(E) Mills, E.S. and L.S. Lubuele. 1994.
‘‘Performance of residential mortgages in lowincome and moderate-income neighborhoods.’’
Journal of Real Estate Finance and Economics 9(3):
245–260.
10 Klausner, Michael, ‘‘A tradable obligation
approach to the Community Reinvestment Act’’ in
Chakrabarti, Prabal. 2009. Revisiting the CRA:
perspectives on the future of the Community
Reinvestment Act. Boston, Mass: Federal Reserve
Bank of Boston. https://www.frbsf.org/publications/
community/cra/revisiting_cra.pdf.
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4. Solutions to the Problem.
Through the CDFI Bond Guarantee
Program, Certified CDFIs will
demonstrate the ability to successfully
deploy conventional long-term debt,
with maturity dates, payment schedules,
conditions, covenants, and reporting
requirements similar to those required
and provided by capital markets. The
CDFI Bond Guarantee Program will
require standardized data collection and
portfolio monitoring, develop a
mechanism for accurately assessing
Certified CDFI credit risk, and provide
capital markets with a track record on
which to base future lending and
investment. Moreover, the CDFI Bond
Guarantee Program, because of the
maximum 30 year maturity, will allow
Certified CDFIs to offer a higher volume
of longer term products to their
borrowers as well as manage their
interest rate and duration risk because
of improved asset/liability matching.
This will further close the gap in the
provision of investments in community
facilities, business lending, and
financial services to rural and LowIncome residents and businesses,
addressing distributional issues in the
provision of financial services.
a. Certified CDFIs as potential
solution to underserved markets and
market failure. A potential solution to
distributional issues in the provision of
financial services and market failure is
lending by financial institutions such as
Certified CDFIs. However, due to their
customer base (Low-Income residents
and small businesses and nonprofits
serving Low-Income communities), the
credit rationing that limits access to
capital for those customers also limits
the ability of Certified CDFIs to secure
affordable long-term capital. Moreover,
there is no standardized data on the
universe of Certified CDFIs, especially
unregulated loan funds that do not have
award reporting history. The CDFI Bond
Guarantee Program would provide
access to a maximum of $2 billion in 30year long-term capital to address the
distributional effects and market failure
faced by Low-Income residents and
communities as well as the inability of
Certified CDFIs to secure long-term
capital to support their lending and
investment efforts.
b. Lowering the transaction costs of
lending to Low-Income Areas.
Transaction costs for the provision of
financial services in Low-Income Areas
are often higher because many LowIncome households have no credit score
data that can be used to standardize and
lower the cost of the underwriting
process. In part, this is due to the fact
that many Low-Income households do
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not use traditional financial institutions
for banking needs, relying on fringe
banking services (e.g., check cashers,
payday lenders, etc.) to conduct
financial transactions, thereby limiting
available credit histories and credit
score data. The CDFI Fund estimates
that, based on credit score data at the
census tract level, a total of 27 percent
of very Low-Income households are
missing credit FICO scores, compared to
eight percent for higher-income areas
(see Table 2 below). These figures may
underestimate the number of
households without credit scores
because they are based on a sample of
households that provided data, adjusted
for the population.
TABLE 2—CREDIT SCORE
INFORMATION
Median family income as a percent of area income by census
tract
Population
share in
sample
%
Percent
missing
credit
scores
%
a. <50% ............
b. 50%<80% .....
c. 80%<120% ...
d. 120%<200%
e. >200% ..........
5.99
26.83
46.99
18.40
1.79
27
18
12
9
8
Grand Total
100.00
14
Source: analysis by the CDFI Fund using
Census Bureau 2000 Summary File 1 demographic data and FICO scores by census tract.
Another factor inhibiting credit
provisioning is the lower profitability
associated with lower-value loans. This,
combined with expensive underwriting,
make the provision of loans and services
to Low-Income populations unprofitable
for mainstream financial institutions.
According to the Carsey Institute
‘‘[t]hese transactions costs can be high
for CDFIs because CDFIs market,
underwrite, and originate smaller loans,
and provide more intensive services. As
a cost driver for CDFI Loan Funds,
operating expense [as a result of high
transactions costs to collect information
on Low-Income communities and to
underwrite smaller value loans] is by far
the largest component of an
organization’s expenses, dwarfing both
cost of capital and loan loss expense.’’ 11
If the $200 million to $2 billion range
is used to estimate the minimum and
maximum impact range for the CDFI
Bond Guarantee program, using the
average loan size of $75,000 for CDFIs,
a total of 2,667 loans to 26,670 loans
11 Michael Swack, Jack Northrup, and Eric
Hangen. CDFI Industry Analysis. Spring 2012.
Carsey Institute, University of New Hampshire,
Durham, New Hampshire, p. 9. Available at https://
www.cdfifund.gov/docs/CBI/2012/Carsey%20
Report%20PR%20042512.pdf.
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8305
may be issued. A share of these loans—
potentially over half—will involve
detailed and costly underwriting
information at the household and firm
level for loan recipients that otherwise
would not receive funding. A share of
these loans will include households and
firms that do not have credit available
elsewhere from mainstream financial
institutions for long-term mortgages,
community facilities such as charter
schools, small business and microloans,
and financial banking services. As a
result of lending by participating
Certified CDFIs, the Certified CDFIs will
generate new credit score data from the
loans to such consumers, which in turn
will provide new credit information on
these products and market segments,
which should mitigate the risk
associated with a lack of credit data on
Low-Income and rural communities and
borrowers. This information can lower
transaction costs and encourage
increased participation of traditional
financial institutions in underserved
areas, thereby attracting additional
capital from the private sector.12
c. Providing long-term debt and
leverage. According to the Carsey
Institute, ‘‘[t]he availability of long-term
debt and equity capital for CDFIs,
particularly loan funds, is one of the
major structural issues facing the
industry. [* * *] The lack of long-term
debt financing forces CDFIs to [save
cash] pushing down leverage and giving
the appearance that many
underleveraged CDFIs are not lending as
much as they could, thus neglecting
demand among its targeted
consumers.’’ 13 The analysis by the
Carsey Institute noted that Certified
CDFIs have access to short-term capital
and cannot access longer-term capital.
Lenders and investors to Certified CDFIs
typically provide Certified CDFIs with
capital that has maturities of ten years
or less. As a result, Certified CDFIs
endure asset liability mismatches when
they offer longer term lending products
(i.e., mortgages) to their target
borrowers.
The analysis by the Carsey Institute
also found that Certified CDFI loan
funds are generally not well leveraged,
possibly reflecting the cost of debt
available to them. According to the
12 See: ‘‘Collaborators or Competitors? Examining
the Relationship Between CDFIs and Mainstream
Banks in Lending to Small Businesses in
Underserved Markets’’ by Geoff Smith, Sean
Zielenbach, Jennifer Newon and Sarah Duda, The
Woodstock Institute, published by the CDFI Fund,
2009 https://www.cdfifund.gov/impact_we_make/
research/community-economic-development.
13 Michael Swack, Jack Northrup, and Eric
Hangen. CDFI Industry Analysis, Spring 2012.
Carsey Institute, University of New Hampshire,
Durham, New Hampshire, p. 15.
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analysis, ‘‘[p]articularly among loan
funds, a large number of CDFIs have
very little leverage (i.e., they fund
themselves mainly through net assets,
not debt). The median CDFI loan fund
in 2009 was leveraged at just $1.10 in
liabilities for every $1 in net assets.
About eight percent of loan funds had
no liabilities whatsoever. Banks and
credit unions are typically leveraged at
a rate of 10:1 or more.’’ 14 The CDFI
Bond Guarantee Program, because of the
maximum 30 year maturity, will allow
Guarantee Program is significantly
lower than what is currently available in
the market. The Carsey analysis notes
that CDFIs typically borrow on a
secured basis at more than 100 basis
points above the London Interbank
Offered Rate (LIBOR), and that this is for
shorter terms than contemplated under
the CDFI Bond Guarantee Program.
Certified CDFIs to offer a higher volume
of longer term products to their
borrowers as well as manage their
interest rate and duration risk because
of improved asset/liability matching.
This will further close the gap in the
provision of services to Low-Income
residents and businesses.
Finally, the Carsey analysis indicates
that the average term for credit provided
to CDFIs is rarely above 15 years. When
appropriately compared based on term,
the cost of funds under the CDFI Bond
5. Baseline
Currently, the CDFI Fund administers
six grant and tax allocation programs:
TABLE 3—CDFI FUND AWARD PROGRAMS
Program
Type/Status
Total amount awarded/number of awardees last funding round
Purpose
CDFI Program ............
Grant/Annual Appropriations.
Native Initiatives .........
Grant/Annual Appropriations.
Bank Enterprise
Award Program.
Grant/Annual Appropriations.
New Markets Tax
Credit Program.
Non-cash Tax Credit
Authority/Annual
Renewal.
Capital Magnet Fund
Grant/FY 2010 only ...
Financial Education
and Counseling
Pilot Program.
Grant/FY 2009 and
FY 2010 only.
Provides financial assistance awards to institutions that are certified as CDFIs, and
technical assistance grants to Certified
CDFIs and entities that will become certified as CDFIs within three years.
Note: The CDFI Fund may give a financial
assistance award in the form of a loan if
the CDFI provides a loan as its matching
fund. Direct loans are dictated by the term
and conditions of the loan submitted as
matching funds.
Assists entities in overcoming barriers that
prevent access to credit, capital, and financial services in Native American, Alaskan Native, and Native Hawaiian communities (Native Communities). The Native
Initiatives’ central component is the Native
American CDFI Assistance (NACA) Program, which increases the number and capacity of existing or new CDFIs serving
Native Communities.
Provides grants to FDIC-insured banks for
increasing their investment in Low-Income
communities and/or in CDFIs.
Provides tax credit allocation authority to certified Community Development Entities
(CDEs), enabling investors to claim tax
credits against their Federal income taxes.
The CDEs in turn use the capital raised to
make investments in Low-Income communities.
Provides grants for CDFIs and other nonprofits to finance the development, rehabilitation, and purchase of affordable housing for Low-Income people.
Provides financial assistance awards to enable Certified CDFIs and other eligible organizations to deliver a variety of financial
education and counseling services to prospective homebuyers.
Highest award amount
$149 million/144
awardees.
$1.4 million.
$11.5 million/33
awardees.
$750,000.
$18 million * ................
$500,000 *.
$3.5 billion in annual
authority.
n/a.
$80 million/23 awardees.
$6 million.
$4.1 million/4 awardees **.
$3.15 million/
$400,000 **.
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* Based on most recent funding round.
** In FY 2010, the CDFI Fund was appropriated $4.1 million for the FEC Pilot Program, of which $3.1 million was specifically appropriated for
an award to an organization located in the State of Hawaii and $1 million was appropriated in FY 2010 for the FEC Pilot Program.
a. Size of loans under the CDFI Bond
Guarantee Program greater than current
CDFI Fund programs. While valuable,
CDFI Fund programs provide limited,
short-term capital for CDFIs. The
increased competitiveness, small award
size, and annual uncertainty in the total
amounts to be awarded limit CDFIs’
ability to plan effectively for long-term
project and capital needs. For the
14 Michael Swack, Jack Northrup, and Eric
Hangen. CDFI Industry Analysis, Spring 2012.
Carsey Institute, University of New Hampshire,
Durham, New Hampshire, p. 14.
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baseline analysis without the CDFI
Bond Guarantee Program, the CDFI
Fund assumes that the above-mentioned
programs would be appropriated at
historical levels and estimates that
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Certified CDFIs would borrow and lend
at current levels.
b. CDFI lending at current levels. In
FY 2011, CDFI Fund awardees reported
originating 16,313 loans or investments
totaling $1.2 billion, based on their
portfolio of activities in 2010. This
includes $357.3 million for 5,010 home
improvement and purchase loans,
$296.8 million for 5,233 business and
microenterprise loans, and $289.2
million for 679 residential real estate
transactions. These data on the amount
and number of loans or investments
originated provide baselines for
benchmarking and targeting program
performance. Under the CDFI Program,
real estate loans financed 17,778
affordable housing units, including
15,979 rental units and 1,799 owner
units. CDFIs also provided extensive
financial products and services to
unbanked and underserved individuals
by opening 6,537 new bank accounts
and maintaining 7,007 Individual
Development Accounts totaling
$9,131,382 in savings. CDFIs reported
providing financial literacy counseling
and other training opportunities to
177,252 individuals. Finally, loans and
investments originated by CDFIs over
the last three years were located in more
than 22 percent of eligible census tracts,
exceeding the target of 10 percent.
Average Certified CDFI awardee loan
sizes for all loan types from 2003 to
2010 are $62,000, and the average term
is 5.9 years. Average commercial real
estate loan sizes are $694,000 with an
average term of 6.4 years.
c. What would occur in the absence of
the CDFI Bond Guarantee Program. The
absence of the CDFI Bond Guarantee
Program limits the ability of Certified
CDFIs to provide long-term affordable
loans and investments to Low-Income
borrowers, individuals, and small
businesses. Financial innovation and
development of products specifically
tailored to Low-Income communities
may be curtailed and the potential for
Certified CDFIs entering private capital
markets would also be limited. The
CDFI Bond Guarantee Program would
result in a share of lending that would
not otherwise occur in Low-Income
areas, as well as leveraging and
relending which could result in
potential economic benefits. The CDFI
Fund’s award and tax credit programs
would remain the primary source of
Federally funded programs for Certified
CDFIs.
6. Time Horizon for the Analysis
The CDFI Bond Guarantee Program is
authorized to guarantee up to $1 billion
in Bonds issued each year through FY
2014, and the maximum maturity of the
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Bonds cannot exceed 30 years.
Therefore, the appropriate time horizon
for analysis is FY 2013–FY 2044.
7. Alternative Approaches Considered
To address the distributional gaps and
market failure identified above, the
CDFI Bond Guarantee Program structure
should allow for participation by
Eligible CDFIs that demonstrate the
ability to deploy Bond Loan proceeds
within the guidelines and credit subsidy
constraints as written in the Act. The
CDFI Fund has chosen to structure the
program pursuant to alternatives c and
d described below.
Regulatory alternatives for the CDFI
Bond Guarantee Program considered
are: (a) Requiring minimum
participation size to equal $100 million
per institution per Guarantee; (b)
requiring a pool of CDFIs with a
minimum participation size equal to
$500,000 per institution in a $100
million Guarantee; (c) requiring a pool
of CDFIs with a minimum participation
size of $10 million per institution in a
$100 million minimum Guarantee; or
(d) requiring general recourse
obligations by CDFI Borrowers.
a. Minimum Bond Loan size of $100
million. This alternative would only
allow a maximum of ten Eligible CDFIs
to participate in the CDFI Bond
Guarantee Program each year, limiting
the ability of a significant percentage of
Certified CDFIs from accessing the Bond
Proceeds and lending them to LowIncome households and businesses in
Low-Income areas. Given the
requirements of a zero-subsidy program
and the debt service burden of a $100
million liability, it is likely that only ten
or fewer Certified CDFIs would be able
to participate based upon estimates of
the additional debt service burden
imposed by a $100 million obligation.
The reduced number of applicants
would lead to a more streamlined
approval and implementation process
(e.g., faster processing, less variation in
documentation) resulting in lower bond
issuance costs for the Qualified Issuers
and Eligible CDFIs in the obligation.
Cumulative administrative costs for
Eligible CDFIs would be lower legal
fees, and the absence of Secondary
Borrower applications that would
require underwriting and due diligence.
These cost reductions would be
achieved in part by reduced reliance on
outside counsel and consultants by
applicants.
However, the benefits of the CDFI
Bond Guarantee Program would also be
reduced due to the concentration of
benefits in a handful of Certified CDFIs.
It is less likely that the funds would be
disbursed among various market
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segments categorized by geography,
industry sector, ethnicity, and other
socioeconomic factors. This alternative
is less likely to address the credit
rationing and distribution problems and
therefore yield lower social benefits.
The benefit of risk diversification would
also be lessened, and could impose a
greater overall cost in terms of interest
rates to Secondary Borrowers.
b. Minimum Bond Loan size of
$500,000. Maximizing the number of
organizations that can participate as an
Eligible CDFI by setting a low Bond
Loan limit does not result in the greatest
net benefits due to the corresponding
increase in administrative costs. The
CDFI Fund could set the minimum
Bond Loan size to $500,000. This
number is representative of the
approximate average size of loans
disbursed through the CDFI Program.15
Under this scenario, up to 200 Eligible
CDFIs could participate in a minimum
$100 million issuance. There is a greater
likelihood of the benefits being
distributed among underserved market
segments as measured by geography,
industry sector, ethnicity, and other
socioeconomic factors. Long-term
capital would be provided to many of
the smaller institutions certified by the
CDFI Fund, and as a result these
institutions would most likely be able to
reduce asset-liability mismatches
previously described.
Increasing the number of possible
Eligible CDFIs in a single Guarantee
pool would:
(1) Decrease the likelihood of issuing
the maximum number of Bonds in a
fiscal year due to the difficulty in
grouping large numbers of Certified
CDFIs into homogeneous credit qualities
for credit scoring approval by the Office
of Management and Budget (OMB); and
(2) for Eligible CDFIs, significantly
increase costs associated with loan
documentation, legal counsel,
underwriting and due diligence, as well
as ongoing compliance and loan
monitoring.
The 10 basis point Agency
Administrative Fee authorized by the
Act would equal only $500 per
institution on an annual basis based on
a minimum participation of $500,000.
This annual fee declines based upon
outstanding principal balance. Further,
Eligible CDFIs participating in the
program would each incur fees
associated with their own legal counsel
and possibly consulting services in
addition to the 10 basis point Agency
Administration Fee. Although scale
15 Through the CDFI Program, the CDFI Fund has
made 157 loans with an average principal of
approximately $512,000 from 1996–2008.
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effects exist, there is a minimum fixed
cost of issuance associated with such
services that each individual Eligible
CDFI would incur, thus raising the
aggregate total costs of issuance for
Eligible CDFIs. Therefore, this
alternative is less likely to address the
credit rationing and distribution
problems, and therefore does not
maximize social benefits.
c. Minimum participation size of $10
million. The CDFI Fund has chosen to
require a minimum Bond Loan size of
$10 million so long as the aggregate
principal amount is at least a $100
million minimum Bond Issue. This has
been determined as the best alternative
that maximizes net benefits. The
proposed structure of the CDFI Bond
Guarantee Program would allow twotier borrowing: Eligible CDFIs would
borrow at the $10 million minimum and
then lend to Secondary Borrowers (in
some cases also CDFIs) in increments
below the $10 million minimum. Given
this proposed structure, up to 100
Eligible CDFIs could theoretically
participate in a fiscal year; however,
several dozen Eligible CDFIs may
choose to apply for larger Bond Loan
amounts.
This program is not meant to be a
reproduction of the CDFI Program,
which provides hundreds of Certified
CDFIs awards between $100,000 and
$1,000,000 each year in an effort to
support the capacity of Certified CDFIs
to build direct equity in support of their
capital needs. The minimum
participation of $10 million targets
Certified CDFIs that have the financial
and operating capacity to quickly
deploy capital to Low-Income
communities as well as lend Secondary
Loans of smaller amounts to Certified
CDFIs that are unable to absorb large
amounts of debt on their balance sheets.
These Certified CDFIs will also be
required to demonstrate the capacity to
track and measure performance and
impact of the Bond Loan proceeds,
which will build the data needed to
help counter the distributional issues
noted in the earlier sections.
By demonstrating that Low-Income
households and businesses are able to
borrow and repay loans of greater
amounts and tenor, the transactional
costs of lending to such borrowers will
decrease over time and the ability of the
participating Eligible CDFIs to relend
and leverage those funds will increase
as the loans are repaid. This regulatory
alternative is best suited to ameliorating
the credit rationing and distribution
problems, and thus maximizes net
social benefits.
d. On-balance sheet, general recourse
obligations. The CDFI Fund has chosen
to require general recourse obligations
that will be on-balance sheet liabilities
of Eligible CDFIs. Eligible CDFIs will be
underwritten for their financial strength,
management capacity, and general
probability of default based upon
various factors. Additionally, the
Eligible CDFIs are required to lend
funds subject to Secondary Loan
Requirements that satisfy a certain
minimum recovery rate in the case of
default or temporary financial hardship
by an Eligible CDFI.
The benefits of this approach include
a streamlined application process where
the Eligible CDFI is underwritten rather
than each individual asset financed by
Bond Loan proceeds. Where necessary,
the Credit Enhancements required to
increase an Eligible CDFI’s credit
quality are more easily quantified and
enforceable. Additionally, more Eligible
CDFIs may be able to participate by
achieving the zero subsidy level
required of the program.
Additional costs may be incurred in
order to participate in the program,
including the cost of acquiring Credit
Enhancements and documenting the
Eligible CDFI’s financial strength,
management capacity, and other
characteristics indicative of capacity to
reduce the probability of default. Costs
such as legal and consultant fees may be
reduced because each individual asset
financed by Bond Loan proceeds does
not need to be underwritten.
Although difficult to estimate, it is
likely that this regulatory alternative is
both the net most beneficial and least
costly alternative. This alternative also
allows the CDFI industry to demonstrate
its ability to manage capital, mitigate
risk, and leverage funds long-term in a
way not currently captured or
adequately assessed. This alternative is
best suited to ameliorating the credit
rationing and distribution issues
identified.
Therefore, the CDFI Fund has chosen
to pursue regulatory alternatives (c) and
(d), above, in the design and
implementation of the CDFI Bond
Guarantee Program.
8. Economic Effects of Selected
Approach.
Per the Act, the CDFI Bond Guarantee
Program will expire at the end of FY
2014; therefore, in FY 2013 and FY 2014
the Secretary of the Treasury can
provide guarantees for Bond Issues with
maturities up to 30 years. The CDFI
Bond Guarantee Program would provide
a maximum of $2 billion in long-term
capital to fill the gap in mortgage
lending, consumer lending, and
business lending. A summary of the
projected transfers and costs under two
scenarios is provided in Table 3: One
Bond Issue per fiscal year ($200 million)
and 10 Bond Issues per fiscal year ($2
billion).
Transfers and costs have been
discounted using a net present value
methodology over a 30-year period
using a three percent discount rate that
reflects the cost of capital and seven
percent discount value for benefits
recommended by OMB in its guidance
for Regulatory Impact Analyses. Table 3
describes the transfers and costs
discounted at both the three percent and
seven percent levels.
TABLE 4—POTENTIAL COSTS AND TRANSFERS
Discounting by 3%
$200 million issuance
Discounting by 7%
$2 billion issuance
$200 million issuance
$2 billion issuance
COSTS
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Government Costs ..............
Eligible CDFIs .....................
$19.9 million .....................
$4.6 million .......................
$28.8 million .....................
$45.7 million .....................
$13.4 million .....................
$4.2 million .......................
$18.6 million.
$41.9 million.
Low-Income communities ...
n/a .....................................
n/a .....................................
n/a .....................................
n/a.
$200 million ......................
$2 billion.
TRANSFERS
Low-Income communities ...
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a. Government costs. The estimate of
the administrative costs to the CDFI
Fund (Government Costs) are based on
current administrative costs of
implementation and the FY 2014 budget
request for additional Full-Time
Employees (FTEs), as well as the staff
required to administer and manage the
program for the remaining 30 years of
the program. Government costs may
fluctuate depending on the size of the
guaranteed Bond Issues, The costs do
not reflect inflation factors or the use of
non-governmental contractors to carry
out administrative functions after FY
2013 and FY 2014.
b. Eligible CDFI costs. The estimated
administrative costs to Eligible CDFIs
for the CDFI Bond Guarantee Program
are based on: (1) The future costs of 10
basis points in Agency Administrative
Fees of the amount of the unpaid
principal of the Bonds, up to the
maximum maturity of 30 years, for
Bonds issued through September 30,
2014, the expiration of the program, and
these costs discounted back to the
present value; and (2) the Bond Issue
costs through September 30, 2014, the
expiration of the program, and these
costs discounted back to the present
value. The Bond Issuance Fees are
estimated to be one percent of principle
value of the Bond Issue.
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9. Non-Quantified and Non-Monetized
Benefits and Costs
Non-quantified benefits include the
reduction of information asymmetry
between Eligible CDFI and mainstream
financial institutions cited in section
3(b), above. Regulated banks, thrifts, and
credit unions are subject to intense and
standard reporting requirements by their
respective regulators. However, nonregulated Certified CDFIs frequently
utilize disparate accounting
methodologies and report certain data
points, such as borrower defaults and
delinquencies, in ways that are difficult
to compare across organizations. Nonprofit Certified CDFIs are yet more
difficult to compare due to the variety
of reporting options available to nonprofit institutions under generally
accepted accounting principles (GAAP).
By addressing the information
asymmetry challenge, Eligible CDFIs in
the CDFI Bond Guarantee Program may
be able to provide sufficient information
to traditional capital market participants
to access private sources of long-term
capital. This non-quantified benefit
would further result in the amelioration
of credit rationing, thereby increasing
the amount of credit information
available for traditional financial
institutions.
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Ancillary non-quantified benefits
include additional information that the
CDFI Fund will be able to develop using
standardized data collection within the
CDFI industry, creating consistent
reporting within other programs, such
as the CDFI Program, and within other
related agencies and regulators that
interact with Certified CDFIs. In
addition, the CDFI industry will be able
to develop innovative financial products
to meet the long-term needs of their
borrowers, thus increasing the level of
direct investment from the Bond
Proceeds and leveraging additional
investment from the private sector. The
program may also result in standardized
credit rating information on the LowIncome communities served by Certified
CDFIs. This would result in further
reductions of informational asymmetry
to the benefit of both individual
borrowers and the CDFIs which serve
them.
Countervailing non-monetized costs
include the increased reporting and
monitoring requirements for
participants in the CDFI Bond
Guarantee Program and administrative
burden posed by data collection and
verification. Depending upon the
structure and composition of Eligible
CDFIs that may pool together for a
minimum $100 million Bond Issue,
non-monetized costs may vary greatly
based on necessary legal counsel, labor
hours of staff, travel requirements, and
other overhead costs. CDFIs that are
awardees of current CDFI Fund
programs are already required to
provide detailed reporting on an
annualized basis. In compliance with
OMB Circular A–129, the CDFI Bond
Guarantee Program will collect all
necessary information to manage the
portfolio effectively, and track progress
towards policy goals. Therefore, the
non-quantified costs for participants in
the CDFI Bond Guarantee Program
would be the incremental burden of
providing necessary reporting for the
CDFI Fund to proactively manage
portfolio risks and performance.
10. Uncertainty in Economic Impacts
The impact estimates are very
dependent on a nested set of
assumptions that presuppose knowledge
of which Certified CDFIs will
participate in the CDFI Bond Guarantee
Program, their target markets, and the
characteristics of the typical Certified
CDFI lending portfolio. While the CDFI
Fund could estimate average
community and economic impacts
based on reporting awardees, the
reliability of such estimates would be
misleading; econometric estimates
based on awardee reporting would be
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8309
inefficient and biased since such
estimates would not necessarily reflect
the subgroup of Certified CDFIs that
would be deemed eligible given the
asset and underwriting requirements of
the CDFI Bond Guarantee Program.
A firm estimate of the impacts of the
CDFI Bond Guarantee Program is not
feasible without understanding the costs
of the assistance to participating CDFIs,
which includes the interest rate on the
Bond Loans and the costs of other terms
and Credit Enhancements necessary to
result in an estimated zero subsidy cost
for the CDFI Bond Guarantee Program.
The CDFI Fund intends to estimate the
subsidy cost separately for each
Guarantee, to account more accurately
for the differing characteristics of each
facility. Accordingly, the cost of capital
to participating CDFIs will depend on
these characteristics, as will the number
of CDFIs that will participate (the take
rate by type of institution) in the CDFI
Bond Guarantee Program. Certified CDFI
participation will also be affected by the
cost of alternative financing that may be
available.
The Carsey Institute 16 report
indicates that CDFIs typically can
borrow, on a secured basis, on the open
market at rates that are approximately
75–100 basis points above the LIBOR.
As of May 22, 2012, the one-year LIBOR
Rate was 1.05 percent,17 or 85 basis
points above the 0.20 percent 1-year
Treasury Yield Curve Rate.18 Although
it may not be appropriate to extrapolate
due to other factors which affect yield
spreads as duration increases, Certified
CDFIs may face borrowing costs that are
160–185 basis points above comparable
Treasury securities. It is likely that the
yield spread charged on 30-year
maturities, which are not available to
Certified CDFIs, would be significantly
higher due to the additional interest-rate
risk inherent to long-term debt
issuances. Moreover, it is not possible to
anticipate the amount of relending that
CDFIs would engage in over the course
of 30 years.
Uncertainty in cost estimates results
from the variety and complexity of
financial structures that may be
presented to the CDFI Bond Guarantee
Program during the application process.
Complex legal structures, Credit
Enhancements, and tailored provisions
in each Agreement to Guarantee may
result in vastly different administrative
burdens for the Eligible CDFI, as well as
16 Capital Markets, CDFIs, and Organization
Credit Risk, p. 47.
17 https://www.bankrate.com/rates/interest-rates/
1-year-libor.aspx.
18 https://www.treasury.gov/resource-center/datachart-center/interest-rates/Pages/
TextView.aspx?data=yield.
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the CDFI Fund. Depending upon the
structure and composition of Eligible
CDFIs that may pool together for a
minimum $100 million Bond Issue,
non-monetized costs may vary greatly
based on necessary legal counsel, labor
hours of staff, travel requirements, and
other overhead costs. Further, the
increased burden of compliance costs by
participating Eligible CDFIs will depend
on the degree of sophistication and
ability of each organization’s
management, staff, and information
systems to process and submit data
required throughout the life of the
program.
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B. Regulatory Flexibility Act
Because no notice of proposed
rulemaking is required under the
Administrative Procedure Act (5 U.S.C
553) or any other law, the Regulatory
Flexibility Act does not apply.
C. Paperwork Reduction Act
The collection of information
contained in the interim rule will be
separately submitted to the Office of
Management and Budget (OMB) in
accordance with the Paperwork
Reduction Act of 1995 (PRA) for
approval and issuance of an OMB
Control Number. Under the PRA, an
agency may not conduct or sponsor, and
an individual is not required to respond
to, a collection of information unless it
displays a valid OMB control number.
The CDFI Fund will publish a PRA
Notice in the Federal Register to solicit
comments on the information
collections. In the PRA Notice
published in the Federal Register, the
CDFI Fund will specifically invite
comments on: (a) Whether the collection
of information is necessary for the
proper performance of the functions of
the CDFI Fund, including whether the
information shall have practical utility;
(b) the accuracy of the CDFI Fund’s
estimate of the burden of the collection
of information; (c) ways to enhance the
quality, utility, and clarity of the
information to be collected; (d) ways to
minimize the burden of the collection of
information on respondents, including
through the use of technology; and (e)
estimates of capital or start-up costs and
costs of operation, maintenance, and
purchase of services to provide
information.
The CDFI Fund will solicit public
comment on each of these issues for the
following sections of this document that
contain information collection (ICs):
1. ICs Regarding the Application
Process (12 CFR 1808.401). This section
provides the requirements for the
Qualified Issuer Application and
Guarantee Application. For the
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Qualified Issuer Application, the
estimated burden for Qualified Issuer
applicants is 240 hours. The estimated
number of Qualified Issuer respondents
is 10 per year. The estimated total
annual burden regarding the Qualified
Issuer Application process is 2,400
hours. For the Guarantee Application,
the estimated burden for Qualified
Issuer applicants is 240 hours. The
estimated burden for Eligible CDFI
applicants is 50 hours. The estimated
number of Qualified Issuer respondents
is 10 per year. The estimated number of
Eligible CDFI respondents is 100 per
year. The estimated total annual burden
regarding the Guarantee Application
process is 7,400 hours. These estimates
may be revised in the final PRA Notices
published in the Federal Register.
2. ICs Regarding Reporting
Requirements (12 CFR 1808.619). This
section provides the reporting
requirements for the Qualified Issuer
and Eligible CDFI participants. The
estimated burden for a Qualified Issuer
participant is 80 hours, consisting of
monthly, quarterly, and annual
reporting. The estimated burden for
Eligible CDFI participants is 86 hours,
consisting of monthly, quarterly, and
annual reporting. The estimated number
of Qualified Issuer participants is 5 per
year. The estimated number of Eligible
CDFI participants is 50 per year. The
estimated total annual burden regarding
the reporting requirements is 4,700
hours. These estimates may be revised
in the final PRA Notices published in
the Federal Register.
Comments concerning suggestions for
reducing the burden of collections of
information should be directed by mail
to the Deputy Director, CDFI Fund,
Department of the Treasury, 1500
Pennsylvania Avenue NW, Washington,
DC 20220, and to the Office of
Management and Budget, Attention:
Desk Officer for Department of the
Treasury, Office of Information and
Regulatory Affairs, Washington, DC
20503.
D. National Environmental Policy Act
The interim rule has been reviewed in
accordance with 12 CFR part 1815, the
CDFI Fund’s environmental quality
regulations published pursuant to the
National Environmental Protection Act
of 1969 (NEPA), which require that the
CDFI Fund adequately consider the
cumulative impact proposed activities
have upon the human environment. It is
the determination of the CDFI Fund that
the interim rule does not constitute a
major Federal action significantly
affecting the quality of the human
environment and, in accordance with
NEPA and the CDFI Fund’s
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environmental quality regulations at 12
CFR part 1815, neither an
Environmental Assessment nor an
Environmental Impact Statement is
required.
E. Administrative Procedure Act
Pursuant to authority at 5 U.S.C.
553(a)(2), the interim rule related to
loans is exempt from the rulemaking
requirements of the Administrative
Procedure Act, 5 U.S.C. 551 et seq.,
including the requirement to provide
prior notice and an opportunity for
public comment.
List of Subjects in 12 CFR Part 1808
Community development, Guaranteed
bonds, Guaranteed loans, Loan
programs—housing and community
development, Reporting and record
keeping requirements.
For the reasons set forth in the
preamble, 12 CFR chapter XVIII is
amended by adding part 1808 to read as
follows:
PART 1808—COMMUNITY
DEVELOPMENT FINANCIAL
INSTITUTIONS BOND GUARANTEE
PROGRAM
Subpart A—General Provisions
Sec.
1808.100 Purpose.
1808.101 Summary.
1808.102 Definitions.
1808.103 Participant not instrumentality.
1808.104 Deviations.
1808.105 Relationship to other CDFI Fund
programs.
1808.106 OMB control number.
Subpart B—Eligibility
1808.200
1808.201
1808.202
Qualified Issuers.
Designated Bonding Authority.
Eligible CDFIs.
Subpart C—Interest Rates; Terms and
Conditions of Bonds, Bond Loans, and
Secondary Loans
1808.300 Interest rates.
1808.301 Eligible uses of Bond Proceeds.
1808.302 Bond terms and conditions.
1808.303 Risk-Share Pool.
1808.304 Eligible uses of Bond Loan
proceeds.
1808.305 Bond Loan terms and conditions.
1808.306 Conditions precedent to Bond
and Bond Loan.
1808.307 Secondary Loan Eligible
Purposes; Terms and conditions.
1808.308 Relending Fund; Relending
Account.
1808.309 Restrictions on uses of Bond
Proceeds and Bond Loan proceeds.
Subpart D—Applications for Guarantee and
Qualified Issuer
1808.400
1808.401
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Subpart E—Evaluation and Selection
1808.500 Evaluation of Qualified Issuer
Applications.
1808.501 Evaluation of Guarantee
Applications.
1808.502 Evaluation of Designated
Bonding Authority Applications.
1808.503 Consultation with Appropriate
Regulatory Agencies.
1808.504 Selection of Qualified Issuers;
Approval for Guarantee.
Guarantees for Bonds issued as part of
a Bond Issue for Eligible Community or
Economic Development Purposes, as
authorized by sections 1134 and 1703 of
the Small Business Jobs Act of 2010
(Pub. L. 111–240; 12 U.S.C. 4713a).
§ 1808.101
Subpart F—Terms and Conditions of
Guarantee
1808.600 Full faith and credit and
incontestability of Guarantee.
1808.601 Assignment and transfer of
Guarantee.
1808.602 Offer of Guarantee.
1808.603 Issuance of Guarantee.
1808.604 Agreement to Guarantee.
1808.605 Agency Administrative Fee.
1808.606 Program Administrator; Servicer;
Master Servicer/Trustee.
1808.607 Representations and warranties
of Qualified Issuer with respect to
Guarantee.
1808.608 Representations and warranties
of Eligible CDFI with respect to each
Bond Loan.
1808.609 Representations and warranties
of Secondary Borrower.
1808.610 Covenants of Qualified Issuer
with respect to Guarantee.
1808.611 Covenants of Eligible CDFI with
respect to Bond and each Bond Loan.
1808.612 Specific financial covenants of
Eligible CDFI.
1808.613 Negative covenants of Eligible
CDFI.
1808.614 Covenants of Secondary
Borrower with respect to Secondary
Loan.
1808.615 Negative covenants of Secondary
Borrower.
1808.616 Events of default and remedies
with respect to Bonds.
1808.617 Events of default and remedies
with respect to Bond Loans.
1808.618 Events of default and remedies
with respect to Secondary Loans.
1808.619 Reporting requirements.
1808.620 Investments in Guaranteed Bonds
ineligible for Community Reinvestment
Act Purposes.
1808.621 Conflict of interest requirements.
1808.622 Compliance with government
requirements.
1808.623 Lobbying restrictions.
1808.624 Criminal provisions.
1808.625 CDFI Fund deemed not to
control.
1808.626 Limitation on liability.
1808.627 Fraud, waste and abuse.
tkelley on DSK3SPTVN1PROD with RULES3
Authority: The Small Business Jobs Act of
2010, Pub. L. 111–240, §§ 1134 and 1703; 12
U.S.C. 4713a.
Subpart A—General Provisions
§ 1808.100
Purpose.
The purpose of the Community
Development Financial Institutions
(CDFI) Bond Guarantee Program is to
support CDFI lending by providing
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Summary.
This section provides a summary
overview of certain key provisions of
the interim rule, the detailed
requirements of which are set forth in
subsequent subparts.
(a) Guarantee. Through the CDFI
Bond Guarantee Program, the Guarantor
will provide a Guarantee for Bonds
issued by Qualified Issuers as part of a
Bond Issue.
(b) Bonds. Pursuant to the Act at 12
U.S.C. 4713a(e), a Bond Issue shall
comprise Bonds having a minimum
aggregate principal amount of
$100,000,000 and a maximum aggregate
principal amount of $1,000,000,000.
The principal amount of each Bond (or
series of Bonds) shall not be less than
$10,000,000. A Bond Rate for each
advance of funds under a Bond will be
established by the Bond Purchaser as of
the date of the respective advance, as
provided in the Bond.
(c) Bond Loans to Eligible CDFIs. The
Qualified Issuer will use Bond Proceeds
to make Bond Loans to Eligible CDFIs
for Eligible Purposes, as those terms are
defined in section 1808.102. The CDFI
Fund will evaluate each Eligible CDFI
using standard Bond Loan Requirements
to assess their creditworthiness and
capacity to receive a Bond Loan. Each
Eligible CDFI may borrow a Bond Loan
in an amount that is at least
$10,000,000. The Bond Loan Rate shall
be the same as the Bond Rate on the
particular advance of funds under the
Bond that funds the Bond Loan. The
aggregate of the principal amounts of
the Bond Loans must not exceed the
maximum principal amount of the
corresponding Bond Issue. The
Qualified Issuer must execute Bond
Loan documents for 100 percent of the
principal amount of each Bond on the
Bond Issue Date. Bond Loan proceeds
may not be drawn down from the
Qualified Issuer until the Eligible CDFI
has an immediate use for the Bond Loan
proceeds. Five percent, or such other
amount that is determined by the CDFI
Fund in its sole discretion, of Bond
Loan proceeds may be used by an
Eligible CDFI to capitalize Loan Loss
Reserves.
(d) Secondary Loans to Secondary
Borrowers. If the Eligible CDFI uses
Bond Loan proceeds to make Secondary
Loans, the Eligible CDFI must execute
Secondary Loan documents (in the form
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8311
of promissory notes) with Secondary
Borrowers as follows:
(1) Not later than 12 months after the
Bond Issue Date, Secondary Loan
documents representing at least 50
percent of such Eligible CDFI’s Bond
Loan proceeds allocated for Secondary
Loans; and
(2) Not later than 24 months after the
Bond Issue Date, Secondary Loan
documents representing 100 percent of
such Eligible CDFI’s Bond Loan
proceeds allocated for Secondary Loans
(excluding any amounts used for
payment of Bond Issuance Fees
pursuant to section 1808.304(b)).
(e) Terms and conditions. Bonds,
Bond Loans and Secondary Loans shall
have terms and conditions as set forth
in Subpart F of this interim rule
including at a minimum, that:
(1) Each Bond shall be a nonrecourse
obligation of the Qualified Issuer,
payable solely from amounts available
pursuant to the Bond Documents. Each
promissory note evidencing a Bond
Loan shall be a general recourse
obligation of the Eligible CDFI and
secured by a first lien on collateral. Each
Secondary Loan shall be secured by a
first lien on collateral and payable
solely from amounts available pursuant
to the Secondary Loan documents;
(2) The maturity date of a Bond shall
not be later than 30 years after the Bond
Issue Date. The maturity date of Bond
Loans and Secondary Loans may be
earlier than, but may not be later than,
the maturity date of the corresponding
Bond;
(3) The Bonds shall be purchased by
the Bond Purchaser on terms and
conditions that are satisfactory to the
Bond Purchaser, the Guarantor, and the
CDFI Fund (under specific requirements
set forth in § 1808.302 and the Bond
Documents); and
(4) The Guarantor shall guarantee
payments on Bonds issued as part of a
Bond Issue in such forms and on such
terms and conditions and subject to
such covenants, representations,
warranties and requirements (including
requirements for audits) as set forth in
this interim rule in Subpart F. These
requirements may be expanded upon
through the program’s Notice of
Guarantee Availability, the Bond
Documents, and the Bond Loan
documents. The Qualified Issuer shall
enter into the applicable Bond
Documents to evidence its acceptance of
the terms and conditions of the
Guarantee.
§ 1808.102
Definitions.
For purposes of this part, capitalized
terms used herein and not defined
elsewhere are defined as follows:
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(a) Act means the Small Business Jobs
Act of 2010, Pub. L. 111–240, sections
1134 and 1703, 12 U.S.C. 4713a;
(b) Affiliate means any entity that
Controls, is Controlled by, or is under
common Control with, another entity.
Control is defined as:
(1) Ownership, control or power to
vote 25 percent or more of the
outstanding shares of any class of
Voting Securities (as that term is
defined in 12 CFR 1805.104(mm)) of any
legal entity, directly or indirectly or
acting through one or more other
persons; or
(2) Control in any manner over the
election of a majority of the directors,
trustees, or general partners (or
individuals exercising similar functions)
of any legal entity; or
(3) The power to exercise, directly or
indirectly, a controlling influence, as
determined by the CDFI Fund, over the
management, credit decisions,
investment decisions, or policies of any
legal entity;
(c) Agency Administrative Fee means
a fee in an amount equal to 10 basis
points (0.1 percent) of the amount of the
unpaid principal of the Bond Issue,
payable annually to the CDFI Fund by
a Qualified Issuer;
(d) Agreement to Guarantee means
the written agreement between the
Guarantor and the Qualified Issuer
which sets forth the terms and
conditions on which the Guarantor will
provide the Guarantee;
(e) Appropriate Federal Banking
Agency has the same meaning as in
section 3 of the Federal Deposit
Insurance Act, 12 U.S.C. 1813(q), and
includes, with respect to an Insured
Credit Union (as such term is defined in
12 CFR 1805.104(bb)), the National
Credit Union Administration;
(f) Appropriate State Agency means
an agency or instrumentality of a State
that regulates and/or insures the
member accounts of a State-Insured
Credit Union (as such term is defined in
12 CFR 1805.104(e));
(g) Bond means a security in the form
of a draw-down bond or note issued by
the Qualified Issuer, with each advance
of funds thereunder bearing interest at
an applicable Bond Rate established by
the Bond Purchaser in accordance with
section 1808.300 of this part, and sold
to the Bond Purchaser, the proceeds of
which will be used for Eligible
Purposes, and which benefit from a
Guarantee;
(h) Bond Documents mean, for each
Bond, the respective Bond, Bond Trust
Indenture, Agreement to Guarantee,
Bond purchase agreement, and all other
instruments and documentation
pertaining to the issuance of the Bond;
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(i) Bond Issuance Fees mean amounts
paid by an Eligible CDFI for reasonable
and appropriate expenses,
administrative costs, and fees for
services incurred in connection with the
issuance of the Bond (but not including
the Agency Administrative Fee) and the
making of the Bond Loan;
(j) Bond Issue means at least
$100,000,000, and no more than
$1,000,000,000, in aggregate principal
amount of Bonds secured by a single
Guarantee; each Bond (or series of
Bonds) in the Bond Issue being in the
minimum principal amount of at least
$10,000,000;
(k) Bond Issue Date means the date on
which the Bond is deemed to be issued
or originated;
(l) Bond Loan means a loan of Bond
Proceeds by a Qualified Issuer to an
Eligible CDFI. A Bond Loan must be in
an initial principal amount that is not
less than $10,000,000, and Bond Loan
proceeds must be used for Eligible
Purposes;
(m) Bond Loan Payment Default Rate
means, in the event of a Bond Loan
payment default, the applicable interest
rate on any overdue amount from its
due date to the date of actual payment
and shall be calculated in the same
manner as a late charge rate is
calculated in the underlying Bond;
(n) Bond Loan Rate means the rate of
interest for each advance of funds under
a Bond Loan, which shall be the same
as the Bond Rate;
(o) Bond Loan Requirements means
the credit criteria, established by the
CDFI Fund, for assessing the
creditworthiness and capacity of each
Eligible CDFI applicant to receive a
Bond Loan;
(p) Bond Proceeds means the funds
that are advanced by the Bond
Purchaser to the Qualified Issuer under
a Bond;
(q) Bond Purchaser (or Bondholder)
means the Federal Financing Bank, the
body corporate and instrumentality of
the Federal Government created by the
Federal Financing Bank Act of 1973 (12
U.S.C. 2281 et seq.);
(r) Bond Rate means the rate of
interest for each advance of funds under
a Bond;
(s) Bond Trust Indenture means the
agreement between the Qualified Issuer
and the Master Servicer/Trustee that
sets forth the rights, duties,
responsibilities and remedies of the
Qualified Issuer and Master Servicer/
Trustee with respect to the Bonds, to
include responsibilities regarding the
management of the collateral, the
management of the funds and accounts,
the repayment and redemption of the
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Bonds, and the circumstances and
processes surrounding any default;
(t) Capital Distribution Plan means
the component of the Guarantee
Application that demonstrates the
Qualified Issuer’s comprehensive plan
for lending, disbursing, servicing, and
monitoring each Bond Loan and that
meets the requirements of § 1808.401 of
this interim rule and such other
requirements as may be designated in
the applicable Notice of Guarantee
Availability. The Capital Distribution
Plan includes, among other components
(specified in § 1808.401 of this interim
rule), a Statement of Proposed Sources
and Uses of Funds, and shall include
one or more Secondary Capital
Distribution Plans;
(u) CDFI Bond Guarantee Program (or
Program) means the program of
providing Guarantees for Bonds issued
as part of a Bond Issue by Qualified
Issuers to make Bond Loans to Eligible
CDFIs for Eligible Purposes, as
authorized by subsections 1134 and
1703 of the Act (12 U.S.C. 4713a), and
implemented under this part;
(v) Certified Community Development
Financial Institution (or Certified CDFI)
means a financing entity that has a
primary mission of promoting
community development and that has
been certified by the CDFI Fund as
meeting the eligibility requirements set
forth in 12 CFR 1805.201;
(w) Community Development
Financial Institutions Fund (or CDFI
Fund) means the Community
Development Financial Institutions
Fund, a wholly owned government
corporation within the U.S. Department
of the Treasury, established under the
Riegle Community Development
Banking and Financial Institutions Act
of 1994 (12 U.S.C. 4701 et seq.), as
amended;
(x) Credit Enhancement means such
instrument or document proffered by an
Eligible CDFI to enhance the credit
quality of a Bond and/or Bond Loan.
Credit Enhancements may include, but
are not limited to, pledges of financial
resources and lines and letters of credit
issued by: an Eligible CDFI; an Affiliate;
a regulated financial institution; a
foundation; or another entity. The RiskShare Pool is not a form of Credit
Enhancement;
(y) Department Opinion means an
internal opinion by the CDFI Fund
regarding compliance by the Qualified
Issuer with the requirements for
approval of a Guarantee;
(z) Designated Bonding Authority (or
DBA) means a Qualified Issuer selected
by the CDFI Fund to issue Bonds on
behalf of certain Eligible CDFIs and
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make Bond Loans to such Eligible
CDFIs, pursuant to this interim rule;
(aa) Eligible Community Development
Financial Institution (or Eligible CDFI)
means a Certified CDFI that has
submitted an application to a Qualified
Issuer for a Bond Loan, has been
deemed creditworthy based on the Bond
Loan Requirements, and has received a
Bond Loan;
(bb) Eligible Community or Economic
Development Purpose (or Eligible
Purpose) means the allowable uses of
Bond Proceeds and Bond Loan
proceeds, which includes financing or
Refinancing for community or economic
development purposes described in 12
U.S.C. 4707(b), including but not
limited to community or economic
development purposes in Low-Income
Areas or Underserved Rural Areas, as
deemed eligible by the CDFI Fund in its
sole discretion; Bond Issuance Fees in
an amount not to exceed one percent of
Bond Loan proceeds; and capitalization
of Loan Loss Reserves in an amount that
is up to five percent of the par amount
of the Bond Loan, or such other amount
that is determined by the CDFI Fund in
its sole discretion;
(cc) Guarantee means the guarantee
by the Guarantor, pursuant to an
Agreement to Guarantee, of the
repayment of 100 percent of the
Verifiable Losses of Principal, Interest,
and Call Premium, if any, on the
corresponding Bonds issued as part of a
Bond Issue; each Guarantee shall be for
a Bond Issue of at least $100,000,000,
plus the related interest and call
premiums;
(dd) Guarantee Application means the
application document that a Qualified
Issuer submits in order to apply for a
Guarantee;
(ee) Guarantor means the Secretary of
the Treasury or the Secretary’s designee;
(ff) Investment Area means a
geographic area meeting the
requirements of 12 CFR
1805.201(b)(3)(ii);
(gg) Loan Loss Reserves means the use
of Bond Loan proceeds (secured by a
Principal Loss Collateral Provision) for
a set aside in the form of cash reserves
that serve as a safeguard to protect the
Eligible CDFI against future losses for
any loans for community or economic
development purposes described in 12
U.S.C. 4707 (b), including community or
economic development purposes in
Low-Income Areas or Underserved
Rural Areas, within the Eligible CDFI’s
portfolio;
(hh) Low-Income means an income,
adjusted for family size, of not more
than: (1) for Metropolitan Areas, 80
percent of the area median family
income; and (2) for non-Metropolitan
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Areas, the greater of: (1) 80 percent of
the area median family income; or (2) 80
percent of the Statewide nonMetropolitan Area median family
income;
(ii) Low-Income Area means a census
tract or block numbering area in which
the median income does not exceed 80
percent of the median income for the
area in which such census tract or block
numbering area is located. With respect
to a census tract or block numbering
area located within a Metropolitan Area,
the median family income shall be at or
below 80 percent of the Metropolitan
Area median family income or the
national Metropolitan Area median
family income, whichever is greater. In
the case of a census tract or block
numbering area located outside of a
Metropolitan Area, the median family
income shall be at or below 80 percent
of the statewide non-Metropolitan Area
median family income or the national
non-Metropolitan Area median family
income, whichever is greater;
(jj) Master Servicer/Trustee means a
third party trust company or financial
institution that is in the business of
administering facilities similar to the
Bonds and Bond Loans, has been
deemed acceptable by the CDFI Fund,
and whose duties include, among
others, exercising fiduciary powers to
enforce the terms of Bonds and Bond
Loans pursuant to the Bond Trust
Indenture entered into by and between
the Master Servicer/Trustee and the
Qualified Issuer, overseeing the
activities of Servicers, and facilitating
Bond principal and interest payments to
the Bond Purchaser;
(kk) Metropolitan Area means an area
that contains an urban core based
statistical area of 50,000 or more
population and is designated as such by
the Office of Management and Budget
pursuant to 44 U.S.C. 3504(e), 31 U.S.C.
1104(d) and Executive Order 10253 (3
CFR, 1949–1953 Comp., p. 758), as
amended;
(ll) Notice of Guarantee Availability
(or NOGA) means the notice, published
by the CDFI Fund, that announces to all
interested parties the opportunity to
submit Qualified Issuer Applications
and Guarantee Applications pursuant
sections 1808.400 and 1808.401 of this
interim rule;
(mm) Principal Loss Collateral
Provision means a cash or cash
equivalent guarantee or facility
provided in lieu of pledged collateral set
forth in the Bond Documents and Bond
Loan documents;
(nn) Program Administrator means
the Qualified Issuer, or an entity
designated by the Qualified Issuer and
approved by the CDFI Fund, that
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8313
performs certain administrative duties
related to application preparation,
compliance monitoring, and reporting,
as well as other duties set forth under
section 1808.606 of this interim rule;
(oo) Qualified Issuer means a Certified
CDFI, or any entity designated by a
Certified CDFI to issue Bonds on its
behalf, that meets the qualification
requirements set forth in section
1808.200 of this interim rule, and that
has been approved as such by the CDFI
Fund pursuant to review and evaluation
of the Qualified Issuer Application;
(pp) Qualified Issuer Application
means the application document that a
Certified CDFI (or any entity designated
by a Certified CDFI to issue Bonds on
its behalf) submits to the CDFI Fund in
order to be approved as a Qualified
Issuer prior to, or simultaneously with,
a Guarantee Application;
(qq) Qualified Secondary Loan
Receivable means payment receivables
from the Secondary Loan(s) relating to
the corresponding Bond Loan;
(rr) Refinance (or Refinancing) means
the use of Bond Proceeds to refinance an
Eligible CDFI’s or Secondary Borrower’s
existing loan, which must have been
used for an Eligible Purpose;
(ss) Relending Fund means the fund
maintained by the Master Servicer/
Trustee to allow an Eligible CDFI to
relend Secondary Loan repayments for
Eligible Purposes, not to exceed 10
percent of the principal amount
outstanding of the Bonds, minus the
Risk Share Pool; the Relending Fund
will include a Relending Account for
each Bond Issue; and each Relending
Account will include a Relending
Subaccount for each Bond Loan;
(tt) Risk-Share Pool means an account
maintained by the Master Servicer/
Trustee throughout the term of a
Guarantee to cover losses before the
Guarantee is exercised; the Risk-Share
Pool is capitalized by pro rata payments
equal to three percent of the amount
disbursed on the Bonds from all Eligible
CDFIs within a Bond Issue; payments
must be funded at each disbursement
under the Bond and associated Bond
Loan; amounts in the Risk-Share Pool
will not be returned to the Eligible
CDFIs until maturity of all of the Bonds,
and termination of all Bond Loans,
within a Bond Issue;
(uu) Secondary Borrower means an
entity that has made application to the
Eligible CDFI for a Secondary Loan,
been deemed creditworthy by the
Eligible CDFI, meets the criteria set forth
in the applicable Secondary Loan
Requirements to receive a Secondary
Loan, and has received a Secondary
Loan;
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(vv) Secondary Capital Distribution
Plan means the component of the
Capital Distribution Plan that pertains to
the making of Secondary Loans,
demonstrates the Eligible CDFI’s
comprehensive plan for lending,
disbursing, servicing and monitoring
Secondary Loans, includes a description
of how the proposed Secondary Loan
will meet Eligible Purposes and meets
such other the requirements as may be
designated in the applicable Notice of
Guarantee Availability;
(ww) Secondary Loan means the use
of Bond Loan proceeds by an Eligible
CDFI to finance or Refinance a loan to
a Secondary Borrower for Eligible
Purposes, which meets the applicable
Secondary Loan Requirements;
(xx) Secondary Loan Requirements
mean the minimum required criteria
used by each Eligible CDFI (in addition
to the Eligible CDFI’s underwriting
criteria) to evaluate a request by a
Secondary Borrower applicant for a
Secondary Loan. The Secondary Loan
Requirements will be established by the
CDFI Fund and incorporated into the
Bond Loan documents;
(yy) Servicer means the Qualified
Issuer, or an entity designated by the
Qualified Issuer and approved by the
CDFI Fund, to perform various Bond
Loan servicing duties, as set forth in this
part;
(zz) Special Servicer means the Master
Servicer/Trustee, or an entity designated
by the Master Servicer/Trustee and
approved by the CDFI Fund, that
performs certain administrative duties
related to the restructuring of Bond
Loans that are in or about to enter into
an event of default as well as other
duties set forth under section
1808.606(d) of this interim rule;
(aaa) State means any of the States of
the United States, the District of
Columbia, the Commonwealth of Puerto
Rico, the Commonwealth of the
Northern Mariana Island, Guam, the
Virgin Islands, American Samoa, the
Trust Territory of the Pacific Islands,
and any other territory of the United
States;
(bbb) Statement of Proposed Sources
and Uses of Funds means the
component of the Guarantee
Application that describes the proposed
uses of Bond Proceeds and the proposed
sources of funds to repay principal and
interest on the Bonds and the Bond
Loans;
(ccc) Targeted Population means
individuals or an identifiable group of
individuals who are Low-Income
persons or lack adequate access to
Financial Products or Financial Services
and meet the requirements of 12 CFR
1805.201(b)(3)(iii);
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(ddd) Trust Estate means the Bond
Loan agreement and promissory notes
evidencing the Bond Loan, all funds and
accounts related to the Bonds and held
by the Master Servicer/Trustee pursuant
to the Bond Trust Indenture including,
but not limited to, the Revenue
Accounts and the Relending Accounts
(as such terms are defined in subsection
1808.606(f)), and any additional
collateral pledged directly by the
Eligible CDFI;
(eee) Underserved Rural Area means
an area that has significant unmet needs
for loans, Equity Investments, or
Financial Services (as those terms are
defined in 12 CFR 1805.104) and is not
contained within either a Consolidated
Metropolitan Statistical Areas (CMSA)
or Primary Metropolitan Statistical
Areas (PMSA), as such areas are defined
in OMB Bulletin No. 99–04 (Revised
Statistical Definitions of Metropolitan
Areas (MAs) and Guidance on Uses of
MA Definitions); and
(fff) Verifiable Losses of Principal,
Interest, and Call Premium means any
portion of required debt payments
related to or arising out of a Bond and
Bond Loan, or the enforcement of either
of them, that the Qualified Issuer is
unable satisfy.
§ 1808.103
Participant not instrumentality.
No participant in the CDFI Bond
Guarantee Program shall be deemed to
be an agency, department, or
instrumentality of the United States.
§ 1808.104
Deviations.
To the extent that such requirements
are not specified by statute, the
Secretary of the Treasury in
consultation with the Office of
Management and Budget, may authorize
deviations on an individual or general
basis from the requirements of this
interim rule upon a finding that such
deviation is essential to program
objectives, and the special
circumstances stated in the proposal
make such deviation clearly in the best
interest of the Federal Government. All
proposals must be in writing and
supported by a statement of the facts
and the grounds forming the basis of the
deviation. For deviations of general
applicability, after a determination is
made by the Secretary of the Treasury
based on the deviation proposal, the
CDFI Fund must publish notification of
granted deviations in the Federal
Register. Any deviation that was not
captured in the original credit subsidy
cost estimate will require either
additional fees, or discretionary
appropriations to cover the cost.
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§ 1808.105 Relationship to other CDFI
Fund programs.
Award funds received under any
other CDFI Fund program cannot be
used by any participant, including
Qualified Issuers, Eligible CDFIs and
Secondary Borrowers, to pay principal,
interest, fees, administrative costs, or
issuance costs (including Bond Issuance
Fees) related to the CDFI Bond
Guarantee Program, or to fund the RiskShare Pool.
§ 1808.106
OMB control number.
The collection of information
requirements in this part are subject to
the review of the Office of Management
and Budget (OMB).
Subpart B—Eligibility
§ 1808.200
Qualified Issuers.
(a) Requirements and qualifications.
An applicant shall be deemed a
Qualified Issuer if it is determined, in
writing by the CDFI Fund, to meet the
following criteria:
(1) The applicant must be a Certified
CDFI, or an entity designated by a
Certified CDFI to issue Bonds on its
behalf;
(2) The applicant must have
appropriate expertise, capacity, and
experience, or otherwise be qualified to
issue Bonds for Eligible Purposes;
(3) The applicant must have
appropriate expertise, capacity, and
experience, or otherwise be qualified to
make Bond Loans for Eligible Purposes;
(4) The applicant must have
appropriate expertise, capacity, and
experience to serve or have identified
qualified entities that will serve as its
Program Administrator and Servicer;
and
(5) The applicant must meet such
other criteria as may be required by the
CDFI Fund pursuant to this interim rule
and the applicable Notice of Guarantee
Availability.
(b) Approval. The designation of an
applicant as a Qualified Issuer does not
ensure that the Guarantor will approve
a Guarantee Application or issue a
Guarantee. In order for the Guarantor to
approve a Qualified Issuer’s Guarantee
Application, the Qualified Issuer must
meet all applicable Guarantee
Application requirements including, but
not limited to, creditworthiness and
other requirements.
(c) Qualified Issuer responsibilities.
The responsibilities of a Qualified Issuer
shall include, but are not limited to:
(1) Preparing and submitting the
Guarantee Application on behalf of
Eligible CDFI applicants that designated
it to serve as Qualified Issuer, including
providing any additional information
needed for review by the CDFI Fund;
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(2) During the CDFI Fund’s review
and evaluation of the Guarantee
Application, serving as primary point of
contact between the CDFI Fund and the
Eligible CDFI applicants that designated
the Qualified Issuer to serve on their
behalf;
(3) Issuing the Bond for purchase by
the Bond Purchaser;
(4) Making Bond Loans to Eligible
CDFIs, ensuring that 100 percent of
Bond Proceeds are used to make Bond
Loans;
(5) Charging interest on the Bond
Loans as set forth in this interim rule
and Bond Loan documents, and
providing for such a schedule of
repayment of Bond Loans as will, upon
the timely repayment of the Bond
Loans, provide adequate and timely
funds for the payment of principal and
interest on the Bonds;
(6) During the duration of the Bonds
and the Bond Loans, serving as primary
point of contact between the CDFI Fund
and Eligible CDFIs;
(7) Overseeing the work of, or serving
in the capacity of, the Program
Administrator and Servicer;
(8) Enforcing the terms and
requirements of the Bond Trust
Indenture including, but not limited to:
ensuring the repayment of Bond Loans
in a timely manner pursuant to the
terms of Bond Loan documents;
assigning delinquent Bond Loans to the
Guarantor upon demand by the CDFI
Fund or the Guarantor; and ensuring
that the Master Servicer/Trustee
establishes and maintains the RiskShare Pool throughout the term of the
Guarantee;
(9) Reviewing collateral and Credit
Enhancement requirements for each
Bond Loan and providing information
on such collateral and Credit
Enhancement, as requested, to the CDFI
Fund;
(10) Making payment of the Agency
Administrative Fee to the CDFI Fund;
(11) Submitting all required reports
and additional documentation
(including reconciling financial data
and Capital Distribution Plan updates,
as necessary); and
(12) Such other duties and
responsibilities as the CDFI Fund, the
Guarantor, or the Bondholder may
require.
(d) Bond Issuance Fees. The Qualified
Issuer may charge Bond Issuance Fees
and all fees reasonable and necessary for
administering and servicing the Bonds
or the Bond Loans, post issuance, to
Eligible CDFIs.
(e) Restriction. A Qualified Issuer may
not receive a Bond Loan under any
Bond Issuance for which it serves as a
Qualified Issuer.
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§ 1808.201
Designated Bonding Authority.
(a) General. In its sole discretion, the
CDFI Fund may solicit Qualified Issuer
Applications from entities proposing to
serve as the Designated Bonding
Authority (DBA). The CDFI Bond
Guarantee Program shall only have one
DBA at any given time. In order to be
selected to serve as the DBA, the entity
must meet all qualifications of a
Qualified Issuer set forth in section
1808.200 of this interim rule; additional
qualifications may be set forth in the
applicable NOGA as determined by the
CDFI Fund.
(b) Selection. The DBA will serve as
a CDFI Fund-selected Qualified Issuer
and designated Qualified Issuer for
Eligible CDFIs that do not elect to
designate another Qualified Issuer. The
DBA will prepare and submit a
Guarantee Application on behalf of such
Eligible CDFI applicants, in accordance
with such criteria set forth in this
interim rule, the applicable Notice of
Guarantee Availability and the
Qualified Issuer Application.
§ 1808.202
Eligible CDFIs.
Each Eligible CDFI applicant seeking
a Bond Loan must meet the following
criteria:
(a) Be certified by the CDFI Fund as
meeting the eligibility requirements set
forth in 12 CFR 1805.201;
(b) Have the appropriate expertise,
capacity, and experience, or otherwise
be qualified to use the proceeds of Bond
Loans for Eligible Purposes; and
(c) Meet such other criteria and
requirements set forth in the applicable
Notice of Guarantee Availability, the
Guarantee Application, the Bond Loan
Requirements, related Bond and Bond
Loan documents, and such other
requirements of the CDFI Fund.
Subpart C—Interest Rates; Terms and
Conditions of Bonds, Bond Loans, and
Secondary Loans
§ 1808.300
Interest rates.
(a) Interest rates. (1) A Bond Rate will
be established by the Bond Purchaser as
of the date of the respective advance of
funds, as provided in the Bond. The
Bond Rate for each advance of funds
must be fixed and consistent with
Federal credit policies outlined in OMB
Circular A–129. The FFB, as Bond
Purchaser, will set rates to the borrower
pursuant to section 6(b) of the Federal
Financing Bank Act (12 U.S.C. 2285(b))
and the FFB Lending Policy. This rate
will be indexed to the appropriate
Treasury rate based on the Treasury
yield curve and include a spread to be
determined by the Bond Purchaser;
variable Bond Rates are not permitted.
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8315
(2) Interest on each advance of funds
under a Bond shall be computed as
provided in the Bond.
(3) A principal and interest payment
schedule will be determined and
provided to the Qualified Issuer for each
advance of funds under a Bond, based
on the Bond Rate established for the
respective advance. The final principal
and interest payment schedule for
amounts due under a Bond will be the
aggregation of the individual principal
and interest payment schedules for all
advances of funds under the Bond.
(4) The Bond Loan Rate shall be the
same as the Bond Rate on the particular
advance of funds under the Bond that
funds the Bond Loan.
(5) The rate of interest for each
Secondary Loan shall be established by
the Eligible CDFI in accordance with
subsection 1808.307(c), and may be
subject to limitations specified in the
applicable NOGA.
(b) Bond Loan payment default
interest rate. In the event of a payment
default on a Bond Loan, the Eligible
CDFI shall pay interest on any overdue
amount from its due date to the date of
actual payment at the Bond Loan
Payment Default Rate. The Bond Loan
Payment Default Rate shall be
calculated in the same manner as a late
charge is calculated under the
underlying Bond.
§ 1808.301
Proceeds.
Eligible uses of Bond
Bond Proceeds must be used by a
Qualified Issuer to finance Bond Loans
or Refinance loans to Eligible CDFIs for
Eligible Purposes as defined in section
1808.102 of this interim rule. A
Qualified Issuer that is also a Certified
CDFI may not finance a Bond Loan to
itself or refinance its own loan. One
hundred percent of the principal
amount of each Bond must be used to
make Bond Loans. As a Bond Loan is
repaid, such repaid Bond Loan proceeds
in excess of those required for debt
service payments on the Bond must be
used to repay the Bond or held in the
Relending Account and used for
additional Secondary Loans, to the
extent authorized under § 1808.308.
§ 1808.302
Bond terms and conditions.
(a) Maturity date. As required by 12
U.S.C. 4713a(e)(1)(D), the maturity date
of a Bond shall not be later than 30
years after the Bond Issue Date. The
maturity date for any advance of funds
under a Bond shall not be later than the
maturity date of the Bond.
(b) Nonrecourse obligation. Each
Bond shall be a nonrecourse obligation
of the Qualified Issuer, payable solely
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from amounts available pursuant to the
Bond Documents.
(c) Terms. The Bonds may contain
only terms that are consistent with the
lending policies and terms of the Bond
Purchaser.
(d) No subordination. The Bonds or
Bond Loans may not be subordinated to
any new or existing liability and
effective subordination of the Bonds or
Bond Loans to tax-exempt obligations
will render the Guarantee void, in
accordance with OMB Circular No. A–
129 (Policies for Federal Credit
Programs and Non-Tax Receivables) and
applicable provisions of the Internal
Revenue Code.
(e) Other limitations. The CDFI Fund
may impose other limitations as
appropriate to administer the CDFI
Bond Guarantee Program including, but
not limited to, requiring Qualified
Issuers to obtain Credit Enhancement to
safeguard against the risk of default.
(f) Terms for Bond issuance and
disbursement of Bond Proceeds. (1) The
Qualified Issuer must execute Bond
Loan documents for 100 percent of the
principal amount of each Bond on the
Bond Issue Date. There will be an
annual assessment to determine
whether the Qualified Issuer is subject
to the repayment provision established
in 12 U.S.C. 4713a(c)(4). Terms and
conditions for the annual assessment
will be set forth in the applicable Notice
of Guarantee Availability.
(2) Disbursements of Bond Proceeds
to the Qualified Issuer shall be made
pursuant to an advance request process
established by the Bond Purchaser and
the CDFI Fund under which the
Qualified Issuer shall request an
advance of funds under a Bond.
(g) Amortization of Bond. The
principal amount of each advance of
funds under a Bond shall amortize in
level debt service payments of principal
and interest, which payments shall be
due either quarterly or semi-annually, as
determined by the Qualified Issuer and
the Bond Purchaser, and which shall
begin on the first principal payment
date specified in the Bond, as
determined by the Qualified Issuer and
the Bond Purchaser. Prior to the first
principal payment date, interest accrued
shall be due on the payment dates
specified in the Bond, as determined by
the Qualified Issuer and the Bond
Purchaser.
(h) Optional prepayment of Bonds.
All or a portion of any advance of funds
under a Bond, or the Bond in its
entirety, may be prepaid by the
Qualified Issuer at any time. Any partial
prepayment of an advance shall be in an
amount equal to at least $100,000 of
principal. Each partial prepayment of an
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advance of funds under a Bond shall be
applied in the manner set forth in the
Bond. Any partial or full prepayment of
an advance of funds under a Bond shall
be subject to the payment of a
prepayment price, as provided in the
Bond Documents.
(i) Mandatory prepayment of Bonds.
(1) Any Bond shall be subject to
mandatory prepayment if Bond Loans or
Secondary Loans are not made in a
timely manner, as follows:
(i) On the Calculation Date (as defined
in subsection 1808.308(e)) of each year,
any amount retained in the Relending
Subaccount that exceeds the Relending
Subaccount Maximum (as defined in
subsection 1808.308(d)) by $100,000 or
more shall be applied to prepay Bonds
on the next succeeding payment date.
(ii) Any amounts derived from the
liquidation of collateral from the Bond
Loan and/or Secondary Loan in
connection with the exercise by the
Guarantor, the Qualified Issuer or the
Bondholder of remedies upon default of
the Bond Loan shall be applied,
immediately upon liquidation, in the
following order (inclusive of reasonable
fees and expenses associated therewith):
(A) To the repayment of any amounts
drawn under the Guarantee;
(B) To the prepayment of Bonds, in a
like amount;
(C) To the replenishment of any funds
drawn from the Risk-Share Pool Fund;
and
(D) To the Eligible CDFI for
application in accordance with the
Secondary Loan documents.
(2) When an amount is required to be
applied as a mandatory prepayment of
Bonds, the Qualified Issuer may select
which advances of funds under a Bond
are to be prepaid. Any amount applied
as a partial prepayment of an advance
under a Bond shall be applied as
provided in the Bond. Any partial or
full prepayment of an advance of funds
under a Bond shall be subject to the
payment of a prepayment price, as
provided in the Bond Documents.
§ 1808.303
Risk-Share Pool.
The Master Servicer/Trustee, on
behalf of the Qualified Issuer and for the
benefit of the Bondholder, shall
establish a Risk-Share Pool that is
funded at each disbursement of the
Bond Loan proceeds by payment from
each Eligible CDFI in accordance with
12 U.S.C. 4713a(d). The Risk-Share Pool
must remain in place throughout the
term of the Guarantee. Amounts in the
Risk Share Pool Fund will not be
returned to Eligible CDFIs until maturity
of all of the Bonds, and termination of
all of the Bond Loans, within a Bond
Issue.
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(a) At each disbursement of the Bond
Loan proceeds, each Eligible CDFI shall
deposit an amount that is equal to three
percent of the disbursement, for a total
of three percent of the guaranteed
amount outstanding of the Bond, from
monies other than Bond Loan proceeds,
into the applicable subaccount of the
Risk-Share Pool Fund. Such monies
shall remain in said account throughout
the term of the Bond.
(b) Any interest on a Bond Loan in
excess of the Bond Loan Rate derived by
the Qualified Issuer during any period
during which the Bond Loan Payment
Default Rate applies shall also be
deposited in the Risk-Share Pool Fund.
(c) The Risk-Share Pool Fund shall be
applied by the Master Servicer/Trustee
to payments of debt service on the Bond
Issue in the event that the Eligible CDFI
defaults in the corresponding payment
of debt service on the Bond Loan. The
defaulted Eligible CDFI’s deposit shall
be applied first to any such payment of
debt service. After depletion of the
defaulted Eligible CDFI’s deposit, each
remaining Eligible CDFI’s deposit shall
be applied prorata to any such payment
of debt service. Monies on deposit in the
Risk-Share Pool Fund shall be applied
to such payments and shall be depleted
in full prior to any draw on the
Guarantee.
(d) Eligible CDFIs (excluding the
Eligible CDFI in default and responsible
for a draw) shall not be required to
replenish the Risk-Share Pool Fund in
the event of a draw.
(e) The Risk Share Pool deposit shall
be sufficient collateral to secure any
draw on Bond Loan proceeds related to
the costs of issuance pursuant to
1808.304(b).
(f) In the event of a payment default
on the Bond Loan by an Eligible CDFI,
the Qualified Issuer shall notify the
CDFI Fund and request permission to
draw from the Risk-Share Pool to cover
any default of principal and interest
payments due to the Bond Purchaser.
(g) Amounts in the Risk Share Pool
Fund will not be returned to Eligible
CDFIs until maturity of all of the Bonds,
and termination of all of the Bond
Loans, within a Bond Issue. Upon
maturity of all of the Bonds, and
termination of the Bond Loans, within
a Bond Issue, the pro rata amount of
each Eligible CDFI’s payments in the
Risk-Share Pool shall be returned to
each Eligible CDFI; provided however,
that such Eligible CDFI has properly
replenished any draws on the RiskShare Pool attributed to nonpayment of
its Bond Loan and the corresponding
Bond.
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§ 1808.304
proceeds.
Eligible uses of Bond Loan
(a) Eligible uses. Bond Loan proceeds
shall be only used for Eligible Purposes,
to prefund one monthly installment of
Bond Loan payments, and to pay Bond
Issuance Fees. As a Bond Loan is repaid,
such repaid Bond Loan proceeds must
be held in the Relending Account and
used for additional Secondary Loans, to
the extent authorized under § 1808.308.
(b) Bond Issuance Fees. (1) Amounts
not to exceed one percent of Bond Loan
proceeds may be applied to pay Bond
Issuance Fees. Bond Loan proceeds that
are used to pay Bond Issuance Fees
shall be applied in the following order
of priority:
(i) To pay reasonable transaction fees
and expenses of the Qualified Issuer, its
advisors and consultants, related to the
Bond issuance (but not including any
salaries or administrative costs of the
Qualified Issuer unrelated to the Bond
issuance);
(ii) To pay reasonable transaction fees
and expenses of the Master Servicer/
Trustee, its advisors and consultants,
related to the Bond issuance; and
(iii) To pay reasonable transaction
fees and expenses of the Eligible CDFI,
its advisors and consultants, related to
the making of the Bond Loan.
(2) Any fees and expenses arising out
of each transaction which, in the
aggregate, exceed the one percent limit
on Bond Issuance Fees payable from
Bond Loan proceeds must be paid by
the Eligible CDFI from monies other
than Bond Loan proceeds.
(c) Prefunding of Bond Loan
payments. Bond Loan proceeds may be
used to prefund one monthly
installment of Bond Loan payments.
tkelley on DSK3SPTVN1PROD with RULES3
§ 1808.305 Bond Loan terms and
conditions.
(a) Maturity date. The maturity date of
a Bond Loan shall not be later than 30
years after the Bond Issue Date. The
maturity date of Bond Loans may be
earlier than, but may not be later than,
the maturity date of the corresponding
Bond.
(b) Bond Loan general recourse
obligation; Collateral. (1) The Bond
Loan shall be a general recourse
obligation of the Eligible CDFI.
(2) The Bond Loan shall be further
secured by a first lien of the Master
Servicer/Trustee, on behalf of the
Bondholder, on:
(i) The Trust Estate;
(ii) Qualified Secondary Loan
Receivables; and
(iii) Either:
(A) An assignment of the Secondary
Loan collateral (other than a Principal
Loss Collateral Provision) from the
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Eligible CDFI to the Master Servicer/
Trustee; or
(B) Provision of a Principal Loss
Collateral Provision for the benefit of
the Master Servicer/Trustee, in
accordance with the Bond Loan
Requirements and the Secondary Loan
Requirements, as applicable.
(3) The CDFI Fund may, in its sole
discretion, approve alternative forms of
Bond Loan collateral.
(4) A parity first lien on pledged
collateral may be accepted, in the sole
discretion of the CDFI Fund.
(5) If any collateral becomes nonperforming during the term of the Bond
Loan, the Guarantor may require the
applicable Eligible CDFI to substitute
other collateral that is of equal quality
to the initial collateral, when
performing, acceptable to the Guarantor
in its sole discretion.
(6) An Eligible CDFI’s parent
organization, Affiliate, or an entity that
is related to the Eligible CDFI through
its management structure, may assume
limited recourse obligation for the Bond
Loan if it provides Credit Enhancement
and/or pledges financial resources or
such other financial support or risk
mitigation that would enhance the
Eligible CDFI’s creditworthiness and its
ability to repay the Bond Loan, thereby
decreasing the risk underlying the
Guarantee.
(c) Disbursement of Bond Loan
proceeds. (1) Bond Loans shall be drawdown loans. Disbursements of Bond
Loan proceeds to the Eligible CDFI shall
be made pursuant to a requisition
process established by the Bond
Purchaser and the CDFI Fund, which
shall include a process by which the
Qualified Issuer shall request an
advance from the Bondholder under the
Bond and a process by which the
Eligible CDFI shall request
disbursement from the Qualified Issuer.
(2) Each requisition shall be
accompanied by invoices and
certifications by the Eligible CDFI (and
the Secondary Borrower, if applicable)
as to expenditure of proceeds for
Eligible Purposes.
(3) No Bond Loan proceeds may be
disbursed later than 60 months after the
Bond Issue Date. Any Bond Loan
proceeds not disbursed will have been
forfeited by the Eligible CDFI.
(4) Disbursements to capitalize the
Eligible CDFI’s Loan Loss Reserves shall
be made pursuant to a requisition
process established by the Qualified
Issuer and the CDFI Fund.
(d) Amortization of Bond Loan. Each
Bond Loan shall amortize in the same
manner as the corresponding Bond;
provided that principal and/or interest
on each Bond Loan shall be payable to
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8317
the Qualified Issuer in monthly
installments based on the required
quarterly or semi-annual installments,
as applicable, due on the corresponding
Bond; provided further, that each
Eligible CDFI shall prefund one monthly
payment installment not later than the
thirtieth day prior to the first payment
date of the corresponding Bond so that
on the thirtieth day prior to such Bond
payment date, the Eligible CDFI shall
have paid in full all amounts due on the
Bond payment date.
(e) Optional prepayment of Bond
Loan. The Bond Loan shall be subject to
prepayment, in whole or in part, at the
option of the Eligible CDFI in
accordance with the optional
prepayment provisions of the
corresponding Bond (including the
required prepayment minimums of
$100,000) and shall be subject to the
payment of a prepayment price, as
determined by the Bondholder in
accordance with the corresponding
Bond.
(f) Mandatory prepayment of Bond
Loan. The Bond Loan shall be subject to
mandatory prepayment by the Eligible
CDFI in accordance with the mandatory
prepayment provisions of the
corresponding Bond.
§ 1808.306 Conditions precedent to Bond
and Bond Loan.
The ability of the Qualified Issuer to
issue a Bond and make a Bond Loan
shall be subject to the satisfaction of the
following conditions precedent:
(a) Evidence satisfactory to the
Qualified Issuer that the Eligible CDFI
will comply with the terms and
conditions of the Bond Loan documents,
including repayment of the Bond Loan;
(b) Evidence satisfactory to the
Qualified Issuer, the Guarantor, and the
CDFI Fund that the Eligible CDFI has
the authority to enter into the Bond
Loan, has secured the Credit
Enhancement, if any, demonstrated a
reasonable prospect of repayment of the
Bond Loan, and pledged the collateral
(including executed security
documents, UCC–1 financing statements
or mortgages, as applicable);
(c) A Guarantee Application that has
been approved by the Guarantor;
(d) A satisfactory credit review by the
CDFI Fund and in compliance with the
Bond Loan Requirements, including
submission of complete and accurate
Guarantee Application materials,
submitted in a timely manner,
demonstrating the Eligible CDFI’s ability
to repay the Bond Loan;
(e) Opinions of legal counsel to the
Qualified Issuer and the Eligible CDFI;
(f) Executed Bond Loan documents;
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(g) Organizational documents of the
Eligible CDFI;
(h) Certifications by the Qualified
Issuer and Eligible CDFIs that Bond
Proceeds and Bond Loan proceeds will
not be used for lobbying by recipients of
Federal loans or guarantees;
(i) A statement that no default, event
of default, or due and unsatisfied
liability has occurred and is continuing
with respect to any obligations of the
Qualified Issuer and each Eligible CDFI
to the CDFI Fund, the Guarantor, the
Bond Purchaser, the U.S. Internal
Revenue Service, or any other agency,
authority or instrumentality of the
Federal Government; and
(j) Any other conditions precedent set
forth in the Bond Loan documents,
including documentation that any credit
enhancements have been secured by the
Eligible CDFI.
tkelley on DSK3SPTVN1PROD with RULES3
§ 1808.307 Secondary Loan Eligible
Purposes; Terms and conditions.
(a) Eligible Purposes. Eligible CDFIs
must make Secondary Loans for Eligible
Purposes. Secondary Loan proceeds
may not be used to capitalize loan loss
reserves.
(b) Making Secondary Loans. (1) If the
Eligible CDFI uses Bond Loan proceeds
to make Secondary Loans, the Eligible
CDFI must execute Secondary Loan
documents (in the form of promissory
notes) with Secondary Borrowers as
follows:
(i) Not later than 12 months after the
Bond Issue Date, Secondary Loan
documents representing at least 50
percent of the Eligible CDFIs’ Bond
Loan proceeds allocated for Secondary
Loans; and
(ii) Not later than 24 months after the
Bond Issue Date, Secondary Loan
documents representing 100 percent of
the Eligible CDFIs’ Bond Loan proceeds
allocated for Secondary Loans
(excluding any amounts used for
payment of Bond Issuance Fees
pursuant to section 1808.304(b)).
(2) In the event that the Eligible CDFI
does not comply with the foregoing
requirements of paragraphs (b)(1)(i) and
(ii) of this section, the available Bond
Loan proceeds at the end of the
applicable period shall be reduced by an
amount equal to the difference between
the amount required by paragraphs
(b)(1)(i) and (ii) minus the amount
previously committed to the Secondary
Loans in the applicable period.
Consistent with the corresponding Bond
Loan, the Secondary Loans shall be
drawn down by the Secondary
Borrowers upon demonstration of an
Eligible Purpose.
(c) Secondary Loan interest rate. The
rate of interest with respect to each
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Secondary Loan shall be determined by
each Eligible CDFI in accordance with
the following limitations:
(1) With respect to each Secondary
Loan, the Eligible CDFI will be required
to propose to the CDFI Fund:
(i) A minimum and maximum spread
over the corresponding Bond Loan Rate
which will represent the standard
minimum and maximum interest rate
(Minimum Secondary Loan Rate and
Maximum Secondary Loan Rate,
respectively); and
(ii) A maximum spread over the
Maximum Secondary Loan Rate in event
of a Secondary Loan default (Maximum
Secondary Loan Default Spread).
(2) The CDFI Fund reserves the right
to evaluate, approve, modify, or
disapprove the proposed Minimum
Secondary Loan Rate, Maximum
Secondary Loan Rate, and Maximum
Secondary Loan Default Spread before
approving any Guarantee Application.
(d) Secondary Loan default rate. The
Eligible CDFI may charge a default rate
on the Secondary Loan so long as such
rate does not exceed the Maximum
Secondary Rate, plus the Maximum
Secondary Loan Default Spread.
(e) Secondary Loan maturity. The
maturity date with respect to the
Secondary Loan shall be in accordance
with the requirements of the applicable
Secondary Loan Requirements. The
maturity date of Secondary Loans may
be earlier than, but may not be later
than, the maturity date of the
corresponding Bond.
(f) Secondary Loan collateral. (1) The
Secondary Loan shall be payable from
amounts made available pursuant to the
Secondary Loan documents, and
secured by:
(i) A first lien of the Eligible CDFI on
pledged collateral in an amount that is
consistent with the loan-to-value ratio
requirements set forth in the Secondary
Loan Requirements; or
(ii) A Principal Loss Collateral
Provision for the benefit of the Master
Servicer/Trustee, in accordance with the
Bond Loan Requirements and the
Secondary Loan Requirements, as
applicable.
(2) Qualified Secondary Loan
Receivables may be used as collateral;
provided however, that such collateral
is secured by a first lien on the
Secondary Loan collateral in accordance
with the Bond Loan Requirements and
the Secondary Loan Requirements, as
applicable.
(3) A parity first lien on pledged
collateral may be accepted, in the sole
discretion of the CDFI Fund.
(g) Commitments for Secondary
Loans. Each proposed Secondary Loan
shall be approved by the credit
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committee of the Eligible CDFI or its
equivalent, in accordance with the
applicable Secondary Loan
Requirements and the Eligible CDFI’s
own underwriting requirements.
(h) Disbursement of Secondary Loan
proceeds. (1) Consistent with the
corresponding Bond Loan, Secondary
Loans shall be draw-down loans.
Disbursements of Secondary Loan
proceeds to the Secondary Borrower
shall be made pursuant to a requisition
process established by the Qualified
Issuer and the CDFI Fund and shall
mirror the requirements for the
disbursement of Bond Proceeds.
(2) Each requisition shall be
accompanied by invoices and
certifications by the Secondary
Borrower as to expenditure of proceeds
for Eligible Purposes. The Eligible CDFI
must also attest that the Secondary Loan
conforms to the requirements set forth
in the applicable Secondary Loan
Requirements. In the case of
Refinancings, the Eligible CDFI must
also attest that the original loan was
used for an Eligible Purpose.
(3) Secondary Loan proceeds shall be
disbursed in accordance with the
applicable Secondary Loan
Requirements which shall set forth,
among other requirements, that
Secondary Loan disbursements shall be
made in accordance with commercially
reasonable standards and timeframes for
disbursement based on the nature of the
Eligible Purposes. The Secondary Loan
Requirements shall also specify what
constitutes a commercially reasonable
timeframe for disbursement in
connection with specific types of
Eligible Purposes. Notwithstanding the
foregoing, each Eligible CDFI shall
propose a timeframe for disbursement in
connection with each Secondary Loan,
which timeframe shall be subject to the
requirements set forth in the Secondary
Loan Requirements.
(i) Amortization of Secondary Loans.
Secondary Loans shall amortize as
determined by the Eligible CDFI;
provided that Secondary Loan
amortization installments shall conform
to the requirements of the applicable
Secondary Loan Requirements.
(j) Prepayment of Secondary Loans.
Secondary Loans shall be subject to
prepayment as determined by the
Eligible CDFI; provided that the
Secondary Loan documents may
provide for modification of Secondary
Loan terms (so long as such
modification does not affect the
corresponding Bond or Bond Loan) and
shall provide for mandatory prepayment
of the Secondary Loan from liquidation
of collateral upon the exercise of default
remedies by the Eligible CDFI, the
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of Guarantee Availability, the Secondary
Loan Requirements or the Bond Loan
documents.
(d) Relending Subaccounts. The
balance of each subaccount of the
Relending Fund (each a Relending
Subaccount) shall not equal more than
10 percent of the principal amount
outstanding of the Bond Loan, minus
the prorata share of the Risk-Share Pool,
as of the Calculation Date (the
Relending Subaccount Maximum).
(e) Notification Date. For purposes of
this section, Notification Date means the
date on which the Master Servicer/
Trustee notifies the Eligible CDFI that
the balance in the applicable Relending
Subaccount exceeds the applicable
Relending Subaccount Maximum.
Calculation Date means, following the
Notification Date, the earlier of:
(1) The date on which the balance in
such Relending Subaccount becomes
§ 1808.308 Relending Fund; Relending
less than or equal to the applicable
Account.
Relending Subaccount Maximum, or
(a) General. As Bond Loans are repaid,
(2) Six months following the
such amounts in excess of those
Notification Date.
required for debt service payments on
(f) Mandatory redemption. Any
the Bonds may be held in the Relending
amounts retained in the Relending
Account and used for additional
Subaccount that exceeds the Relending
Secondary Loans, to the extent
Subaccount Maximum by $100,000 or
authorized in this section.
(b) Application of funds to Secondary more as of the applicable Calculation
Date shall be transferred to the
Loans. Amounts on deposit in the
Redemption Account of the Debt
Relending Account shall be applied by
Service Fund (as defined in
the Eligible CDFI to make additional
§ 1808.606(f)) to effectuate a mandatory
Secondary Loans, the term of which
redemption of the corresponding Bond
shall not exceed the maturity of the
in accordance with the terms of the
Bond.
Bond Trust Indenture. The
(c) Requirements of Secondary Loans
determination of the actual amount on
from Relending Account. Secondary
deposit on any Calculation Date shall
Loans made from the Relending
Account shall meet all the requirements exclude amounts then obligated
pursuant to any executed promissory
of the Secondary Loan Requirements,
and conform to the following additional notes, whether then disbursed or
undisbursed.
conditions:
(1) The Qualified Issuer has received
§ 1808.309 Restrictions on uses of Bond
and approved a Bond Loan commitment Proceeds and Bond Loan proceeds.
request submitted by the Eligible CDFI;
Pursuant to 12 U.S.C. 47123a(c)(5),
(2) No material event has occurred
Bond Loan proceeds shall not be used
and is continuing or is threatened at the
for:
Eligible CDFI level or Qualified Issuer
(a) Political activities;
level that adversely affects the Eligible
(b) Lobbying, whether directly or
CDFI, the Bond or the Bond Loan;
through other parties;
(3) No Eligible CDFI event of default
(c) Outreach;
has occurred and is continuing with
(d) Counseling services;
respect to the Bond Loan;
(e) Travel expenses;
(4) No Qualified Issuer event of
(f) For the salaries or administrative
default has occurred and is continuing
costs of the Qualified Issuer or any
with respect to the Bond;
recipients of Bond Proceeds, other than
(5) There exists no unreplenished
those costs covered by Bond Issuance
draw on the Risk-Share Pool Fund by
Fees;
the Eligible CDFI;
(g) To fund the Risk-Share Pool;
(6) The maturity of Secondary Loans
(h) To pay fees other than Bond
made from the Relending Fund shall not
Issuance Fees; or
extend beyond the maturity date of the
(i) Any other use as may be specified
corresponding Bond; and
in the applicable Notice of Guarantee
(7) Any other conditions set forth in
Availability.
this interim rule, the applicable Notice
tkelley on DSK3SPTVN1PROD with RULES3
Qualified Issuer or the Guarantor as
required by the Bond, the Bond Loan
documents, or the Agreement to
Guarantee, as applicable.
(k) Repayment of Secondary Loans.
As Secondary Loans are repaid, the
Eligible CDFI may, through the
Relending Fund, Refinance and
substitute as collateral for the Bond
Loan other loan(s) for Eligible Purposes
that meet the required Secondary Loan
Requirements, provided that the Eligible
CDFI makes Bond Loan payments as
required. If the outstanding principal
balance of the Bond Loan exceeds the
outstanding principal balance of the
Bond Loan in use for the Eligible
Purposes, the Eligible CDFI shall repay
the difference, which shall be deposited
in the Relending Account, and credited
to the corresponding Relending
Subaccount.
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8319
Subpart D—Applications for Guarantee
and Qualified Issuer
§ 1808.400 Notice of Guarantee
Availability.
Interested parties will be invited to
submit Qualified Issuer Applications
and Guarantee Applications in
accordance with this interim rule and
the applicable Notice of Guarantee
Availability. The NOGA will set forth
application and eligibility requirements
for an entity that wishes to be
designated as a Qualified Issuer
(including, in the CDFI Fund’s sole
discretion, the Designated Bonding
Authority) and a Qualified Issuer that
wishes to be approved to receive a
Guarantee. The NOGA may also contain
eligibility requirements, application
procedures, and additional terms and
conditions for entities wishing to serve
as Servicers, Program Administrators,
and other roles as may be determined by
the CDFI Fund. The NOGA will advise
interested parties on how to apply and
will establish criteria, deadlines, and
other Qualified Issuer and Guarantee
Application requirements, including
specifying any additional terms and
conditions, limitations, special rules,
procedures, and restrictions for a given
application period.
§ 1808.401
Application requirements.
(a) Qualified Issuer Application. A
Qualified Issuer applicant shall provide
all required information in its Qualified
Issuer Application to establish that it
meets all criteria for designation as a
Qualified Issuer and can carry out all
Qualified Issuer responsibilities and
requirements including, but not limited
to, information that demonstrates that
the applicant has the appropriate
expertise, capacity, and experience and
is qualified to make, administer and
service Bond Loans for Eligible
Purposes. After receipt of a Qualified
Issuer Application, the CDFI Fund may
request additional information and
clarifying or technical information on
the materials submitted as part of the
Qualified Issuer Application. The CDFI
Fund will provide the template for the
Qualified Issuer Application.
(b) Guarantee Application. (1) A
Qualified Issuer shall provide all
required information in its Guarantee
Application to establish that it meets all
criteria set forth in this interim rule to
receive a Guarantee and can carry out
all Guarantee requirements including,
but not limited to, information that
demonstrates that the Qualified Issuer
has the appropriate expertise, capacity,
and experience and is qualified to make,
administer and service Bond Loans for
Eligible Purposes. The Guarantee
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Application shall include a Capital
Distribution Plan and a Secondary
Capital Distribution Plan for each
potential Eligible CDFI, as well as any
other requirements set forth in the
applicable Notice of Guarantee
Availability or as may be required by
the CDFI Fund in its sole discretion for
the evaluation and selection of
Guarantee applicants. After receipt of a
Guarantee Application, the CDFI Fund
may request additional information and
clarifying or technical information on
the materials submitted as part of the
Guarantee Application. The CDFI Fund
will provide the template for the
Guarantee Application.
(2) The Capital Distribution Plan shall
include, but not be limited to, the
following information:
(i) Statement of Proposed Sources and
Uses of Funds;
(ii) For the Qualified Issuer and each
Certified CDFI seeking a Bond Loan, an
organizational capacity statement, a
plan that describes how the proposed
Bond Loan will meet Eligible Purposes,
and a description of Credit
Enhancement, if any;
(iii) A Secondary Capital Distribution
Plan, if applicable; and
(iv) Assurances and certifications that
not less than 100 percent of the
principal amount of Bonds will be used
to make Bond Loans for Eligible
Purposes beginning on the Bond Issue
Date, and that Secondary Loans shall be
made as set forth in subsection
1808.307(b).
Subpart E—Evaluation and Selection
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§ 1808.500 Evaluation of Qualified Issuer
Applications.
(a) General. Each Qualified Issuer
Application will be evaluated by the
CDFI Fund and, if acceptable, the
applicant will be designated as a
Qualified Issuer, at the sole discretion of
the CDFI Fund. The Qualified Issuer
Application review and evaluation
process will be based on established
standard operating procedures, which
may include interviews of applicants
and/or site visits to applicants
conducted by the CDFI Fund. Through
the application review process, the CDFI
Fund will evaluate Qualified Issuer
applicants on a merit basis and in a fair
and consistent manner. Each Qualified
Issuer applicant will be reviewed on its
ability to successfully implement the
activities proposed in its Qualified
Issuer Application and carry out the
responsibilities of a Qualified Issuer
over the life of the Bond. The CDFI
Fund will periodically reevaluate the
Qualified Issuer over the life of the
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Bond to ensure it meets the performance
standards over the life of the facilities.
(b) Eligibility and completeness. A
Qualified Issuer applicant will not be
eligible to be designated as a Qualified
Issuer if it fails to meet the eligibility
requirements described in § 1808.200 of
this part and the applicable NOGA, or
if it has not submitted complete and
timely Qualified Issuer Application
materials. The CDFI Fund reserves the
right to request additional information
from the Qualified Issuer applicant, as
the CDFI Fund deems appropriate.
(c) Substantive review. When
evaluating Qualified Issuer Applications
and selecting applicants to be
designated as Qualified Issuers, the
CDFI Fund will apply the criteria set
forth in the Act at 12 U.S.C. 4713a(a)(8),
this interim rule, and the applicable
NOGA including, but not limited to, the
following evaluation factors:
(1) The extent to which the Qualified
Issuer Application demonstrates that the
applicant possesses the appropriate
expertise, capacity and experience, or
other qualifications to manage the Bond
Issue on the terms and conditions set
forth in this interim rule and the
applicable NOGA;
(2) The expertise and experience of its
Program Administrator and Servicers;
(3) The Qualified Issuer applicant’s
demonstrated performance of
financially sound business practices
relative to the industry norm for bond
issuers, as evidenced by reports of
Appropriate Federal Banking Agencies,
Appropriate State Agencies, and/or
auditors;
(4) Information that demonstrates the
applicant, its Program Administrator
and Servicers have the appropriate
expertise, capacity, and experience or
otherwise be qualified to originate,
underwrite, service and monitor loan
portfolios that serve Eligible Purposes
and are targeted toward Low-Income
and Underserved Rural Areas; and
(5) Such other criteria that the CDFI
Fund deems appropriate for purposes of
evaluating the merits of a Qualified
Issuer Application.
§ 1808.501 Evaluation of Guarantee
Applications.
(a) General. After being designated as
a Qualified Issuer, the Qualified Issuer
may submit a Guarantee Application,
seeking authority to issue Bonds and
receive a Guarantee on the proposed
Bond Issue. A successful Guarantee
Application must:
(1) Demonstrate that the Qualified
Issuer and the proposed Eligible CDFIs
have a feasible plan to successfully
repay the Bond (including principal,
interest, and call premium) and Bond
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Loans according to their respective
terms, to the satisfaction of the CDFI
Fund; and
(2) Meet any other requirements
deemed appropriate by the CDFI Fund
and the Guarantor.
(b) Eligibility and completeness. A
Qualified Issuer will not be eligible to
receive a Guarantee if it fails to meet the
eligibility requirements set forth in
§ 1808.200 of this part and the
applicable NOGA, or if it has not
submitted complete and timely
Guarantee Application materials. The
CDFI Fund reserves the right to request
additional information from the
Qualified Issuer, or to reject a Guarantee
Application as the CDFI Fund may
deem appropriate.
(c) Substantive review. In evaluating
Guarantee Applications and selecting a
Qualified Issuer to receive a Guarantee,
the CDFI Fund and the Guarantor will
apply the criteria set forth in this
interim rule and the applicable NOGA
including, but not limited to, the
following evaluation factors:
(1) The extent to which the Guarantee
Application proposes strategies that
demonstrate the Qualified Issuer’s
ability to implement the Capital
Distribution Plan;
(2) The adequacy of proposed risk
mitigation provisions designed to
protect the financial interests of the
Federal Government based on
information that includes, but is not
limited to: the amount and quality of
any Credit Enhancements; the amount
and quality of any other financial
resources to be pledged or risk
mitigation to be provided by an Affiliate
to the Eligible CDFI through its
management structure, that will assume
limited obligation for the Bond Loan
and enhance the Eligible CDFI’s
creditworthiness and its ability to repay
the Bond Loan; and the provision for an
orderly retirement of principal;
(3) The extent to which the Guarantee
Application demonstrates that the
Qualified Issuer possesses the
appropriate expertise, capacity and
experience, or other qualifications to
manage the Bond Issue on the terms and
conditions set forth in this interim rule
and the applicable NOGA;
(4) The Qualified Issuer’s
demonstrated performance of
financially sound business practices
relative to the industry norm for bond
issuers, as evidenced by financial audits
and reports of Appropriate Federal
Banking Agencies, Appropriate State
Agencies, independent regulators, or
auditors;
(5) Information that demonstrates that
the Qualified Issuer has the appropriate
expertise, capacity, and experience or is
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otherwise qualified to make, service and
monitor Bond Loans;
(6) The extent to which the proposed
Bond Loans are likely to serve LowIncome Areas or Underserved Rural
Areas; and
(7) Such other criteria that the CDFI
Fund and the Guarantor deem
appropriate for purposes of evaluating
the merits of a Guarantee Application.
§ 1808.502 Evaluation of Designated
Bonding Authority Applications.
In addition to the evaluation criteria
for Qualified Issuers set forth above,
DBA applicants must demonstrate the
existence of resources to perform
functions of the DBA as set forth in
section 1808.201 and meet any other
criteria set forth in the applicable NOGA
and that may be required by the CDFI
Fund.
§ 1808.503 Consultation with Appropriate
Regulatory Agencies.
In the case of any CDFI Bond
Guarantee Program applicant that is a
Federally regulated financial institution
(or an Affiliate thereof), the CDFI Fund
may consult with the Appropriate
Federal Banking Agency or Appropriate
State Agency prior to designating the
applicant as a Qualified Issuer, Servicer,
Master Servicer/Trustee, Program
Administrator or other role, making a
final Guarantee commitment, issuing a
Guarantee, and/or entering into an
Agreement to Guarantee. The CDFI
Fund also reserves the right, in its sole
discretion, to consult with the
Appropriate Federal Banking Agency
and Appropriate State Agency with
respect to any Eligible CDFI that is
proposed to receive a Bond Loan or any
Secondary Borrower that is proposed to
receive a Secondary Loan.
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§ 1808.504 Selection of Qualified Issuers;
Approval for Guarantee.
(a) General. Designation of an
applicant as a Qualified Issuer shall be
based on the foregoing evaluation
criteria and processes, and any other
requirements or processes that may be
set forth in the applicable NOGA. An
applicant may simultaneously apply for
Qualified Issuer designation and a
Guarantee; however, the entity must be
designated as a Qualified Issuer before
being selected to receive a Guarantee.
(b) The Guarantor will determine
whether a Qualified Issuer will be
authorized to issue Bonds and receive a
Guarantee based on the foregoing
evaluation criteria and processes, and
any other requirements or processes set
forth in the applicable NOGA.
(1) Not later than 30 days after receipt
of a complete Guarantee Application (or
30 days after designation as a Qualified
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Issuer, if submitting simultaneous
applications) by a Qualified Issuer, the
CDFI Fund shall provide an internal
Department Opinion regarding
compliance by the Qualified Issuer with
the requirements of the CDFI Bond
Guarantee Program.
(2) The Guarantor shall approve or
deny a Guarantee Application no later
than 90 days after receipt of a complete
Guarantee Application, and all other
required information by the CDFI Fund
or the Guarantor with respect to a
request for such Guarantee.
(c) The Guarantor may limit the
number of Guarantees made per year or
Guarantee Applications accepted to
ensure that a sufficient examination of
Guarantee Applications is conducted.
(d) The CDFI Fund shall notify the
Qualified Issuer in writing of the
Guarantor’s approval or disapproval of a
Guarantee Application.
(e) The Guarantor reserves the sole
discretion to approve a Guarantee
Application for a Guarantee amount that
is less than that which is requested.
(f) In the event that there are material
changes after submission of a Guarantee
Application (including, but not limited
to, a revision of the Capital Distribution
Plan or a change in the Certified CDFIs
that are proposed for receiving Bond
Loans) prior to or after the designation
as a Qualified Issuer or approval of a
Guarantee Application or Guarantee, the
Qualified Issuer or Guarantee applicant
must notify the CDFI Fund of such
material changes information in a timely
and complete manner. The Guarantor
will evaluate such material changes,
along with the Guarantee Application,
to approve or deny the Guarantee
Application and/or determine whether
to modify the terms and conditions of
the Guarantee.
Subpart F—Terms and Conditions of
Guarantee
§ 1808.600 Full faith and credit and
incontestability of Guarantee.
The full faith and credit of the Federal
Government is pledged to the payment
of all Bonds issued as part of a Bond
Issue with respect to Verifiable Losses of
Principal, Interest, and Call Premium.
An executed Guarantee shall be
conclusive evidence that: the Guarantee
has been properly authorized; the
underlying Bond qualified for such
Guarantee; and, but for fraud or material
misrepresentation, such Guarantee will
be presumed to be legally valid,
binding, and enforceable.
§ 1808.601 Assignment and transfer of
Guarantee.
The Guarantee shall be fully
assignable and transferrable to the
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capital markets, on terms and
conditions that are consistent with
comparable bonds guaranteed by the
Federal Government and satisfactory to
the Guarantor and the CDFI Fund.
§ 1808.602
Offer of Guarantee.
Upon approval of the Guarantee
Application, the Qualified Issuer will
receive from the Guarantor an offer of
Guarantee that will set forth certain
required terms and conditions to be
fulfilled prior to issuance of the
Guarantee.
§ 1808.603
Issuance of Guarantee.
(a) Conditions precedent. The
commitment of the Guarantor to issue a
Guarantee shall be subject to conditions
precedent that are usual and customary
for financings of this type or otherwise
deemed appropriate by the Guarantor
including, but not limited to, the
following:
(1) The conditions precedent to the
Bond Issue and the making of the Bond
Loan have been satisfied, including a
credit review that indicates a reasonable
prospect of repayment as demonstrated
by the CDFI Fund’s analysis of the cash
flow and collateral provisions of the
Eligible CDFI;
(2) The Qualified Issuer shall have
submitted to the CDFI Fund a complete
Guarantee Application, containing all
required information relating to the
Bond and the Bond Loan, as required by
the Guarantor;
(3) There have been no material
changes to the Bond and Bond Loan
documents from the forms thereof
approved by the Guarantor and the CDFI
Fund;
(4) The Bond Purchaser and the
Qualified Issuer shall have executed a
Bond Purchase Agreement; and
(5) Such additional information or
documents as may be required by the
CDFI Fund, the Guarantor, or the Bond
Purchaser.
(b) Rescission of approval. The
Guarantor, in its sole discretion, may
rescind its approval of a Guarantee
Application if:
(1) The Guarantor or the CDFI Fund
determines that the Qualified Issuer
cannot, or is unwilling to, provide
adequate documentation and proof of
compliance with paragraph (a) of this
section within the time provided for in
the offer of Guarantee, or
(2) The Guarantor or the CDFI Fund
determines, in its sole discretion, that
the Qualified Issuer no longer meets
applicable CDFI Bond Guarantee
Program criteria and requirements.
§ 1808.604
Agreement to Guarantee.
(a) General. The Qualified Issuer must
enter into an Agreement to Guarantee
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that sets forth the terms and conditions
on which the Guarantor will provide the
Guarantee of the Bonds issued as part of
a Bond Issue.
(b) Terms and conditions. The terms
and conditions of the Agreement to
Guarantee may include, but are not
limited to, the following:
(1) The form and amount of
Guarantee;
(2) Any prohibited amendments of
Bond Documents or limitations on
transfer of the Guarantee;
(3) Terms and conditions of the RiskShare Pool and any Credit Enhancement
that may be required by the CDFI Fund
and the Guarantor;
(4) Provisions regarding the Agency
Administrative Fee;
(5) Representations and warranties of
the Qualified Issuer;
(6) Pledged security;
(7) Financial covenants;
(8) Events of default and remedies;
(9) Assignment of Bond Loans to the
Guarantor;
(10) Guarantor payment does not
discharge Qualified Issuer; subrogation;
(11) Undertakings for the benefit of
the Bondholder including: notices,
registration, prohibited amendments,
prohibited transfers, and
indemnification;
(12) Governing law;
(13) Terms and conditions of Bond
Loans;
(14) Prohibition against
subordination; and
(15) Such other matters as the
Guarantor or the CDFI Fund may deem
necessary or appropriate.
(c) Access to funds. In the event that
the Qualified Issuer does not execute
Bond Loan agreements for 100 percent
of the Bond principal on the Bond Issue
Date, the Qualified Issuer will have no
further access to the amount of funds for
which Bond Loan agreements were not
executed.
§ 1808.605
Agency Administrative Fee.
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The Qualified Issuer shall pay the
CDFI Fund annually a fee equal to 10
basis points (0.1 percent) of the amount
of the unpaid principal of the Bond(s).
The initial Agency Administrative Fee
must be paid in full as a condition to
closing any Agreement to Guarantee, no
later than the effective date of the
Agreement to Guarantee.
§ 1808.606 Program Administrator;
Servicer; Master Servicer/Trustee.
(a) General. Bond Loans shall be
overseen by qualified Program
Administrators, Servicers, and a Master
Servicer/Trustee. For purposes of
maximizing efficiencies and minimizing
costs, Program Administrator and
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Servicer duties may be consolidated and
performed by Qualified Issuers.
(b) Program Administrator. (1) Duties.
The duties of a Program Administrator,
which may be performed by the
Qualified Issuer, shall include, but not
be limited to:
(i) Approving and qualifying Eligible
CDFI applications for participation in
the Guarantee Application;
(ii) Bond and Bond Loan packaging;
(iii) Reviewing and approving
Secondary Loan commitments from
Eligible CDFIs for funds from the
Bondholder or the Relending Account
based on the Secondary Loan
Requirements;
(iv) Compliance monitoring of Bond
Loans and Secondary Loans;
(v) Preparing and submitting reports
required by this interim rule; and
(vi) All other duties and related
services that are customarily expected of
a Program Administrator, and as may be
required by the CDFI Fund or the
Guarantor.
(2) Selection. There shall be one
Program Administrator for each Bond
Issue. The Qualified Issuer applicant
shall provide, in its Qualified Issuer
Application, information on its
proposed Program Administrator that
demonstrates the appropriate expertise,
capacity and experience, as well as any
additional information that may be
required to meet the criteria set forth in
the applicable Notice of Guarantee
Availability, including, but not limited
to, information on the entity’s
management and organization, loan
administration, and financial capability.
(3) Fees and expenses. The Program
Administrator’s administrative fees and
expenses shall be paid by the Eligible
CDFI in accordance with applicable
financing documents.
(c) Servicer. (1) Duties. The duties of
a Servicer, which may be performed by
the Qualified Issuer, shall include, but
not be limited to:
(i) Billing and collecting Bond Loan
payments from Eligible CDFIs;
(ii) Initiating collection activities on
past-due Bond Loans;
(iii) Transferring Bond Loan payments
to the respective funds and accounts
managed by the Master Servicer/
Trustee;
(iv) Bond Loan administration and
servicing;
(v) Systematic and timely reporting of
Bond Loan performance through
remittance and servicing reports, and
providing such reports as may be
required by this interim rule;
(vi) Proper measurement of annual
outstanding Bond Loan requirements;
and
(vii) All other duties and related
services that are customarily expected of
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Servicers, and as may be required by the
CDFI Fund or the Guarantor.
(2) Selection. There shall be one
Servicer for each Bond Issue. Each
Qualified Issuer applicant shall provide,
in its Qualified Issuer Application,
information on its proposed Servicer
that demonstrates the appropriate
expertise, capacity and experience, as
well as any additional information that
as may be required to meet the criteria
set forth in the applicable Notice of
Guarantee Availability including, but
not limited to, information on the
entity’s management and organization,
loan servicing, and financial capability.
(3) Fees and expenses. The Servicer’s
administrative fees and expenses for
each Bond Issue shall be paid by the
associated Eligible CDFIs in accordance
with applicable financing documents.
(d) Special Servicer. (1) Duties. The
duties of the Special Servicer shall be
performed by the Master Servicer/
Trustee and shall include, but not be
limited to:
(i) Negotiating the restructuring of
Bond Loans that are in or about to enter
into an event of Default;
(ii) Initiating foreclosure action and
appointing a receiver; and
(iii) Enforcing deficiency judgments.
(2) Evaluation. The Master Servicer/
Trustee applicant shall provide, in its
Master Servicer/Trustee application,
information on its proposed Special
Servicer capabilities and experience.
These capabilities may be performed by
the Master Servicer/Trustee or an entity
designated by the Master Servicer/
Trustee. The CDFI Fund shall evaluate
the Master Servicer/Trustee applicant’s
or its designee’s ability to perform the
duties of Special Servicer based on the
capacity and experience in the
following areas:
(i) Restructuring, recovery, and
foreclosure of loans that are similar to
Bond Loans;
(ii) Financial strength and capacity;
(iii) Managing regional or national
intake, processing, or servicing
operational systems and infrastructure
of loans that are similar to Bond Loans;
(iv) Managing regional or national
originator communication systems and
infrastructure;
(v) Developing and implementing
training and other risk management
strategies on a regional or national basis;
(vi) Compliance monitoring and
reporting; and
(vii) Such other criteria that may be
required by the CDFI Fund.
(3) Fees and expenses. The Bond
Trust Indenture will outline the Special
Servicer’s administrative fees and
expenses; these fees shall be paid by the
Eligible CDFI in accordance with the
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Bond Trust Indenture and related
documents.
(e) Master Servicer/Trustee. (1) Duties.
The duties of the Master Servicer/
Trustee shall include, but not be limited
to:
(i) The fiduciary power to enforce the
terms of Bonds and the Bond Loans
pursuant to the Bond Trust Indenture;
(ii) Establishing and managing the
funds and accounts set forth in this
interim rule;
(iii) Providing such reports as
required;
(iv) Overseeing the activities of
Servicers and managing loan
administration;
(v) Servicing and monitoring of Bond
Issues with respect to repayment
obligations to the Bondholder and the
terms of the Agreement to Guarantee;
(vi) Tracking the movement of funds
between the accounts of the Master
Servicer/Trustee and all Servicers;
(vii) Ensuring orderly receipt of the
monthly remittance and servicing
reports of the Servicers;
(viii) Monitoring collection and
foreclosure actions;
(ix) Aggregating the reporting and
distribution of funds to the Qualified
Issuer, CDFI Fund, and the Bondholder,
as necessary;
(x) Removing and replacing Servicers,
as necessary;
(xi) Performing systematic and timely
reporting of Bond Loan performance
compiled from Servicers’ reports, and
providing such reports as required in
this interim rule;
(xii) Ensuring proper distribution of
funds to Eligible CDFIs, servicing the
Bonds, and repayment to the
Bondholder; and
(xiii) All other duties and related
services that are customarily expected of
a Master Servicer/Trustee, and as may
be required by the CDFI Fund.
(2) Selection. There shall be one
Master Servicer/Trustee for the CDFI
Bond Guarantee Program. The CDFI
Fund shall solicit applications and
make a selection of a Master Servicer/
Trustee based on the capacity and
experience of the applicant in the areas
set forth in paragraph (a)(1) of this
section and in the following paragraphs
(a)(2)(i) through (vi):
(i) Administration, servicing, and
monitoring of loans that are similar to
Bond Loans;
(ii) Financial strength and capacity;
(ii) Managing regional or national
intake, processing, or servicing
operational systems and infrastructure
of loans that are similar to Bond Loans;
(iii) Managing regional or national
originator communication systems and
infrastructure;
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(iv) Developing and implementing
training and other risk management
strategies on a regional or national basis;
(v) Compliance monitoring and
reporting; and
(vi) Such other criteria that may be
required by the CDFI Fund.
(3) Fees and expenses. The Master
Servicer/Trustee’s administrative fees
and expenses shall be paid by the
Eligible CDFI in accordance with the
Bond Trust Indenture and related
documents.
(f) Funds and accounts. The following
funds shall be established by the Master
Servicer/Trustee at the time of
execution of the Bond Trust Indenture,
on behalf of the Qualified Issuer and for
the benefit of the Bondholder. On the
Bond Issue Date, separate accounts shall
be established therein for each Bond
and, furthermore, within each account
there shall be established a subaccount
for each Bond Loan on the date of the
closing of each Bond Loan:
(1) The Project Fund, and therein a
Project Account for each Bond: All
disbursements of Bond Proceeds from
the Bondholder pursuant to the
requisition processes shall be deposited
in the applicable Project Account or
Subaccount, and the Master Servicer/
Trustee shall disburse advances with
respect to the Bond Loan to the Eligible
CDFI therefrom;
(2) The Revenue Fund, and therein a
Revenue Account for each Bond: All
payments of debt service or
prepayments on the Bond Loan
pursuant to the Bond Loan documents,
other payments by the Eligible CDFI
pursuant to the Bond Loan documents,
and any investment income derived
from the corresponding accounts or
subaccounts in the Debt Service Fund
shall be deposited in the accounts and
subaccounts of the Revenue Fund;
(3) The Debt Service Fund, and
therein an Interest Account, a Principal
Account and a Redemption Account for
each Bond: Not later than 30 days prior
to a Bond payment date, the Master
Servicer/Trustee shall make the
following transfers from the applicable
account or subaccount of the Revenue
Fund:
(i) All scheduled payments
(amortization installments or at
maturity) of principal received from the
Eligible CDFI on the Bond Loan shall be
transferred to the Principal Account or
Subaccount;
(ii) All scheduled payments
(amortization installments or at
maturity) of interest received from the
Eligible CDFI on the Bond Loan shall be
transferred to the Interest Account or
Subaccount; and
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(iii) All prepayments of principal,
interest and premium, if any, received
from the Eligible CDFI on the Bond
Loan shall be transferred to the
Redemption Account or Subaccount;
(4) The Administrative Fees Fund,
and therein an Administrative Fees
Account for each Bond: All fees
necessary for administering and
servicing the Bond or the Bond Loan
(including the Agency Administrative
Fee and Bond Issuance Fees), payable
by the Eligible CDFI pursuant to the
Bond Loan documents, shall be
deposited in the applicable account or
subaccount of the Administrative Fees
Fund and, thereafter, shall be disbursed
by the Master Servicer/Trustee to the
subject recipient in accordance with the
terms of each such payment;
(5) The Risk-Share Pool Fund, and
therein a Risk-Share Pool Account for
each Bond, in accordance with
§ 1808.303 of this part;
(6) The Relending Fund, and therein
a Relending Account for each Bond, in
accordance with § 1808.308 of this part;
and
(7) Such other funds and accounts as
may be required by the CDFI Fund and
the Qualified Issuer in connection with
a Bond Issue, Bond or Bond Loan.
(g) Other funds and accounts. The
Master Servicer/Trustee shall be
permitted to establish such other funds
and accounts as deemed necessary to
administer the requirements of the Bond
Trust Indenture. Each account shall be
designated by the name of the
applicable Bond and each subaccount
shall be designated by the name of the
applicable Bond Loan.
(h) No commingling of funds. No
commingling of monies shall be
permitted between accounts or
subaccounts.
(i) Permitted investments. Monies on
deposit in the Revenue Fund, the Debt
Service Fund, the Risk-Share Pool Fund,
the Relending Fund, if invested, shall be
invested in U.S. Treasury securities
with maturities that do not exceed the
dates on which monies will be required
for anticipated purposes and may be
sold to the extent funds are needed
sooner than anticipated. All interest
shall be credited to the relevant account
in the relevant fund.
§ 1808.607 Representations and
warranties of Qualified Issuer with respect
to Guarantee.
The Qualified Issuer shall represent
and warrant to the Guarantor, at the
execution of any Agreement to
Guarantee to which it is a party and
thereafter at the closing of any Bond
Loan and the issuance of any Bond, the
following:
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(a) The Qualified Issuer is duly
organized, validly existing and in good
standing in its State of organization with
the power and authority to enter into
the agreements and consummate the
transactions thereby contemplated;
(b) The information contained in the
Qualified Issuer Application is true and
correct;
(c) The Bonds, when executed, are
and will be duly authorized, executed,
valid, binding and enforceable
obligations of the Qualified Issuer;
(d) Except as disclosed to the
Guarantor, no claim or litigation is
pending or threatened which would
materially adversely affect the Qualified
Issuer’s ability to consummate the
transactions contemplated by the
Agreement to Guarantee, the Bond, or
the Bond Loan;
(e) The consummation of the
transactions contemplated by the
Agreement to Guarantee, the Bond, and
the Bond Loan will not conflict with or
constitute an event of default under any
law or agreement to which the Qualified
Issuer is subject;
(f) No authorization, approval or
consent of a governmental authority is
necessary on the part of the Qualified
Issuer to consummate the transactions
contemplated by the Bond or the Bond
Loan which has not been obtained;
(g) No funds from any other CDFI
Fund program are being used to pay
principal, interest, fees, administrative
costs, or issuance costs (including Bond
Issuance Fees) related to the CDFI Bond
Guarantee Program, or to fund the RiskShare Pool; and
(h) Any other representation or
warranty deemed appropriate by the
Guarantor, the CDFI Fund or the Bond
Purchaser.
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§ 1808.608 Representations and
warranties of Eligible CDFI with respect to
each Bond Loan.
The Eligible CDFI shall represent and
warrant to the Qualified Issuer, at the
execution of each set of Bond Loan
documents and, thereafter, until
repayment in full of such Bond Loan,
the following:
(a) The performance by the Eligible
CDFI under the Bond Loan documents
is duly authorized, does not require
consent or approval of any
governmental authority not already
obtained, does not constitute a default
of any law or agreement to which the
Eligible CDFI is subject, will not result
in the imposition of any lien (other than
pursuant to the Bond Loan), and
constitutes a valid, binding and
enforceable obligation of the Eligible
CDFI;
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(b) The information provided by the
Eligible CDFI fairly represents the
financial position (in conformity with
generally accepted accounting
principles), experience and capacity of
the Eligible CDFI, and there have been
no material adverse changes in the
Eligible CDFI’s financial condition since
the date of such financial information;
(c) No claim or litigation is pending
or threatened which would materially
adversely affect the Eligible CDFI’s
ability to consummate the transactions
contemplated by the Bond Loan, or
repay the Bond Loan;
(d) No event of default or other
material event which could become an
event of default has occurred and is
continuing;
(e) The Eligible CDFI has filed all
Federal, State and local tax returns
required and paid all liabilities in
connection therewith;
(f) The Eligible CDFI has good and
marketable title to the collateral;
(g) The Bond Loan will be applied to
Eligible Purposes;
(h) The information provided in the
Guarantee Application is true and
accurate;
(i) No default, event of default or due
and unsatisfied liability has occurred
and is continuing with respect to any
obligations of the Eligible CDFI to the
Guarantor, the CDFI Fund, the Bond
Purchaser, the U. S. Internal Revenue
Service, or any other agency, authority
or instrumentality of the Federal
Government;
(j) No funds from any other CDFI
Fund program are being used to pay
principal, interest, fees, administrative
costs, or issuance costs (including Bond
Issuance Fees) related to the CDFI Bond
Guarantee Program, or to fund the RiskShare Pool; and
(k) Any other representations and
warranties set forth in the Bond Loan
documents.
§ 1808.609 Representations and
warranties of Secondary Borrower.
Each Secondary Borrower shall make
identical representations and warranties
as the Eligible CDFI and shall make
specific representations and warranties
with respect to the collateral and the
project that is proposed to be financed
by the Secondary Loan, upon which the
Eligible CDFI, the Qualified Issuer, the
Bondholder, the Guarantor, and the
CDFI Fund may rely. These
representation and warranties shall be
to the satisfaction of the Guarantor and
the CDFI Fund.
§ 1808.610 Covenants of Qualified Issuer
with respect to Guarantee.
The Qualified Issuer shall covenant in
the Agreement to Guarantee that it will:
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(a) Furnish to the CDFI Fund, at the
Qualified Issuer’s expense, all annual
and periodic financial reporting as
described in § 1808.619 of this part;
(b) Maintain books and records
related to each Bond Loan, the collateral
and the project that is to be financed by
Bond Proceeds, and allow inspection
thereof;
(c) Preserve its corporate existence
and Certified CDFI status, if applicable;
(d) Comply with all laws to which it
is subject;
(e) Maintain its solvency;
(f) To the extent it assigns any of its
obligations under the agreement to an
Affiliate, guarantee performance of such
obligations;
(g) Allow audits and investigations by
the CDFI Fund, the Treasury Inspector
General, the Comptroller General, or
such other Federal Government offices
as may be designated by the Guarantor
or the CDFI Fund;
(h) Provide such reports as required in
§ 1808.619 of this part;
(i) Make, execute and deliver such
instruments as the Guarantor or the
CDFI Fund may reasonably request;
(j) Sign and certify as true and correct
all Bond Documents and Bond Loan
documents;
(k) Not amend or modify any
agreement related to the Bond without
the consent of the Bondholder, the
Guarantor, or the CDFI Fund, as
applicable;
(l) Comply with the terms and
conditions of the Agreement to
Guarantee, the Bond Trust Indenture,
and the Bond and Bond Loan
documents;
(m) Immediately notify the Guarantor
and the CDFI Fund of any material
change or event that affects any
representation, warranty or covenant of
the Guarantee, Bond or Bond Loan
documents;
(n) Pay and discharge all Federal,
State and local taxes;
and
(o) Comply with all other covenants
set forth in the Bond Documents and
Bond Loan documents.
§ 1808.611 Covenants of Eligible CDFI with
respect to Bond and each Bond Loan.
The Eligible CDFI shall covenant in
the Bond Loan agreement that it will:
(a) Furnish to the Qualified Issuer, at
the Eligible CDFI’s expense, certain
annual and periodic financial and
performance reporting;
(b) Maintain books and records
related to the Bond Loan and Secondary
Loans, the collateral and the project that
is to be financed by Bond Loan
proceeds, and allow inspection thereof;
(c) Preserve its corporate existence
and Certified CDFI status;
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(d) Comply with all laws to which it
is subject;
(e) Maintain insurance, as required by
the Qualified Issuer, against such risks
as would customarily be maintained by
commercially reasonable companies in a
similar line of business;
(f) Pay and discharge all Federal, State
and local taxes;
(g) Ensure proper use of proceeds of
the Bond Loan;
(h) Pay all required administrative
expenses;
(i) Indemnify the Guarantor, the CDFI
Fund, the Qualified Issuer and the
Master Servicer/Trustee and their
Affiliates;
(j) Collaterally assign all rights, title,
and interest in and to Secondary Loan
collateral to the Master Servicer/
Trustee;
(k) Maintain the collateral;
(l) Enforce the covenants against the
Secondary Borrowers;
(m) Be bound, to the extent
applicable, to provisions of the Bond
Trust Indenture;
(n) Periodically, as directed by the
CDFI Fund, furnish certain information
designed to measure the impacts of the
Bond Loan and the CDFI Bond
Guarantee Program;
(o) Periodically, as directed by the
CDFI Fund, furnish to the Qualified
Issuer and/or the CDFI Fund updates to
the Capital Distribution Plan; and
(p) Comply with all other
representations and warranties set forth
in the Bond Loan documents.
tkelley on DSK3SPTVN1PROD with RULES3
§ 1808.612 Specific financial covenants of
Eligible CDFI.
The Eligible CDFI shall covenant in
Bond Loan documents that it will
comply with specific financial
requirements as required by the
Guarantor and the CDFI Fund. Such
financial requirements will be
determined based upon the quantity and
the character of the existing loan
facilities of the Eligible CDFI, among
other factors. The specific financial
covenants may include, but are not
limited to, one or more of the following
measures: consolidated net asset ratio;
consolidated unrestricted net asset ratio;
and minimum available liquidity (or, in
the case of Eligible CDFIs that are
regulated financial institutions, such
ratios and information as may be
required by the applicable Appropriate
Federal Banking Agency or Appropriate
State Agency). The specific financial
requirements shall be measured based
upon such Eligible CDFI’s financial
statements prepared in accordance with
generally accepted accounting
principles and consistent with
historically applied accounting policies
and practices.
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§ 1808.613
CDFI.
Negative covenants of Eligible
The Eligible CDFI will covenant in
Bond Loan documents that it will
comply with certain negative covenants,
as required by the CDFI Fund including,
but not limited to, that it will:
(a) Not incur or issue additional longterm or short-term debt to the extent
that the incurrence of such additional
debt would violate the specific financial
covenants of such Eligible CDFI under
the Bond Loan; and
(b) Not permit liens on all or any part
of the Bond Loan collateral, except as
permitted pursuant to the Bond Loan
documents, and only then to the extent
consistent with the applicable laws and
regulations governing the Bond Loan
and as approved by the CDFI Fund.
§ 1808.614 Covenants of Secondary
Borrower with respect to Secondary Loan.
In addition to making specific
representations and warranties with
respect to the collateral and the project
being financed by the Secondary Loan
proceeds, each Secondary Borrower
shall covenant in the Secondary Loan
agreement that it will:
(a) Periodically, as directed by the
Eligible CDFI, furnish to the Eligible
CDFI certain annual and periodic
financial and performance reporting;
(b) Maintain books and records
related to the Secondary Loan, the
collateral and the project that is to be
financed by Bond Loan proceeds, and
allow inspection thereof;
(c) Preserve its corporate existence, as
applicable;
(d) Comply with all laws to which it
is subject;
(e) Maintain insurance, as directed by
the Eligible CDFI, against such risks as
would customarily be maintained by
commercially reasonable companies in a
similar line of business;
(f) Pay and discharge all Federal, State
and local taxes;
(g) Ensure proper use of proceeds of
the Secondary Loan;
(h) Maintain the collateral;
(i) Periodically, as directed by the
Eligible CDFI, furnish to the Eligible
CDFI certain information designed to
measure the impacts of the Bond Loan
and the CDFI Bond Guarantee Program;
and
(j) Comply with all other
representations and warranties set forth
in the Secondary Loan documents.
§ 1808.615 Negative covenants of
Secondary Borrower.
Any additional debt of the Secondary
Borrower shall be in accordance with
the requirements set forth in the
applicable Secondary Loan
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8325
Requirements and the Secondary Loan
agreement, and may include, but shall
not be limited to, that:
(a) The Secondary Borrower will not
incur or issue additional long-term or
short-term debt payable from and
having a lien on all or a portion of the
Secondary Loan collateral that is
(1) Equally and ratably secured; or
(2) Superior or senior to the lien
thereon of the Secondary Loan as more
specifically set forth in the Secondary
Loan agreement; and
(b) So long as no event of default has
occurred and is continuing, the
Secondary Borrower may, subject to the
approval of the Eligible CDFI, incur or
issue at any time additional debt
payable from and having a lien on all or
a portion of the Secondary Loan
collateral that is subordinate or junior to
the lien thereon of the Secondary Loan
and enter into subordinate credit facility
agreements, provided that no events of
default have occurred and are
continuing under the Secondary Loan
documents or any parity senior loan
documents and that such debt meets the
requirements set forth in paragraph (a)
of this section.
§ 1808.616 Events of default and remedies
with respect to Bonds.
(a) Events of default. An event of
default with respect to any Bond shall
include, but not be limited to:
(1) Nonpayment of interest or the
Agency Administrative Fee when due
and payable;
(2) Nonpayment of principal or
prepayment price when due and
payable;
(3) The use of Bond Proceeds for any
purpose other than an Eligible Purpose;
and
(4) Any other events of default set
forth in the Bond or the Bond Trust
Indenture.
(b) Default of other Bonds. An event
of default under one Bond shall not
constitute an event of default under
another Bond.
(c) Remedies. Pursuant to the
Agreement to Guarantee and the Bond
Trust Indenture, remedies upon an
event of default shall include, but not be
limited to, the following:
(1) Declaring the entire amount of
unpaid principal and interest on the
applicable Bond immediately due and
payable; and
(2) Exercising all remedies available
under the applicable Agreement to
Guarantee and the Bond Trust
Indenture.
(d) Notice and comment. Prior to
imposing any remedies pursuant to this
section or the Agreement to Guarantee,
the Guarantor shall, to the maximum
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extent practicable, provide the Qualified
Issuer with written notice of the
proposed sanction and an opportunity
to comment. Nothing in this section,
however, shall provide a Qualified
Issuer the right to any formal or
informal hearing or comparable
proceeding not otherwise required by
law.
tkelley on DSK3SPTVN1PROD with RULES3
§ 1808.617 Events of default and remedies
with respect to Bond Loans.
(a) Events of default. The following
shall constitute an event of default with
respect to each Bond Loan:
(1) Nonpayment of interest when due
and payable;
(2) Nonpayment of principal or
prepayment price when due and
payable;
(3) Failure of the Eligible CDFI to
perform any condition or covenant
under any Bond Loan document;
(4) Any representation or warranty of
the Eligible CDFI made in connection
with the Guarantee Application or the
Bond Loan is false or incorrect in any
material respect;
(5) Principal or interest on any
indebtedness of the Eligible CDFI or any
subsidiary of the Eligible CDFI in excess
of $100,000 is not paid when due
(subject to a cure period);
(6) The holder of any junior or parity
lien on collateral institutes a proceeding
to enforce a lien on the collateral;
(7) The Eligible CDFI files bankruptcy
or consents to the appointment of a
receiver or trustee for itself or the
collateral;
(8) Any money judgment is filed
against the Eligible CDFI and remains
unvacated for a period of 60 days from
filing;
(9) The use of Bond Loan proceeds for
any purpose other than an Eligible
Purpose; or
(10) Any other events of default set
forth in the Bond Loan documents.
(b) Remedies. Remedies of the
Qualified Issuer upon an event of
default include, but are not limited to,
the following:
(1) Declaring the entire amount of
unpaid principal and interest on the
applicable Bond Loan immediately due
and payable;
(2) Applying for appointment of a
receiver or trustee for the collateral;
(3) At the direction of the Guarantor,
terminating the Bond Loan agreement,
declaring the entire amount of unpaid
principal and interest on the applicable
Bond Loan immediately due and
payable; and
(4) Exercising all remedies available
under the applicable Bond Loan
agreement, including declaring the
Bond Loan Payment Default Rate in
effect.
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(c) Enforcement rights. The Guarantor
reserves all rights to enforce remedies
upon an event of default.
§ 1808.618 Events of default and remedies
with respect to Secondary Loans.
(a) Events of default. The following
shall constitute an event of default with
respect to each Secondary Loan:
(1) Nonpayment of interest when due
and payable;
(2) Nonpayment of principal when
due and payable;
(3) Failure of the Secondary Borrower
to perform any condition or covenant
under any Secondary Loan document;
(4) Any representation or warranty of
the Secondary Borrower made in
connection with the Secondary Loan
application or the Secondary Loan
documents is false or incorrect in any
material respect;
(5) Principal or interest on any
indebtedness of the Secondary Borrower
or any subsidiary of the Secondary
Borrower in excess of $100,000 is not
paid when due (subject to a cure
period);
(6) The holder of any junior or parity
lien on collateral institutes a proceeding
to enforce a lien on the collateral;
(7) The Secondary Borrower files
bankruptcy or consents to the
appointment of a receiver or trustee for
itself or the collateral;
(8) Any money judgment is filed
against the Secondary Borrower and
remains unvacated for a period of 60
days from filing; or
(9) Any other events of default set
forth in the Secondary Loan documents.
(b) Remedies. The Qualified Issuer
and the Guarantor will reserve certain
rights to enforce (or direct enforcement
of) remedies upon an event of default
under the Secondary Loan documents.
§ 1808.619
Reporting requirements.
The Bond Documents and Bond Loan
documents shall specify such
monitoring and financial reporting
requirements as deemed appropriate by
the CDFI Fund including, but not
limited to the following:
(a) Data—General. As long as the
Bonds remain outstanding, a Qualified
Issuer shall provide such reports and
shall maintain such records as may be
prescribed by the CDFI Fund that are
necessary to:
(1) Disclose the manner in which
Bond Proceeds are used, including
providing documentation to
demonstrate proceeds of the Bond Loans
were used for Eligible Purposes;
(2) Demonstrate compliance with the
requirements of this part and the Bond
Documents;
(3) Evaluate the impact of the CDFI
Bond Guarantee Program;
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(4) Ensure the Qualified Issuer meets
the performance standards over the life
of the facilities; and
(5) Accomplish such other purposes
that the CDFI Fund may deem
appropriate.
(b) Customer profiles. The Qualified
Issuer shall require each Eligible CDFI
to compile such data on the gender,
race, ethnicity, national origin, or other
information on individuals and entities
that utilize its products and services as
the CDFI Fund shall prescribe and as is
permissible under applicable law. In
general, such data will be used to
determine whether residents of
Investment Area(s) or members of
Targeted Population(s) are adequately
served and to evaluate the impact of the
CDFI Bond Guarantee Program.
(c) Audits; Access to records. (1) The
CDFI Fund may, if it deems appropriate,
audit Qualified Issuers, Eligible CDFIs,
Program Administrators, Servicers, and/
or the Master Servicer/Trustee, or
provide for or require an audit, at least
annually. Portfolio management and
loan monitoring will also employ riskbased, on-site verification of the Eligible
CDFI’s lending activities to Secondary
Borrowers and compliance with the
terms in Secondary Lending
Requirements.
(2) Qualified Issuers, Eligible CDFIs,
Program Administrators, Servicers, the
Master Servicer/Trustee, as applicable,
must submit such financial and activity
reports, records, statements, and
documents at such times, in such forms,
and accompanied by such reporting
data, as required by the CDFI Fund to
ensure compliance with the
requirements of this interim rule and to
evaluate the impact of the CDFI Bond
Guarantee Program.
(3) The Federal Government,
including the U.S. Department of the
Treasury, the Comptroller General, and
their duly authorized representatives,
shall have full and free access to such
entities’ offices and facilities and all
books, documents, records, and
financial statements relating to the
Guarantee and may copy such
documents as they deem appropriate
(4) The CDFI Fund, if it deems
appropriate, may prescribe audit and
access to record requirements for
Eligible CDFIs and Secondary
Borrowers.
(d) Retention of records. Qualified
Issuers, Eligible CDFIs, Program
Administrators, the Master Servicer/
Trustee, and Servicers shall comply
with all record retention requirements
as set forth in OMB Circular A–110 (as
applicable).
(e) Data collection and reporting.
Qualified Issuers, Eligible CDFIs, the
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Program Administrator, the Master
Servicer/Trustee, and Servicers, as
applicable, shall submit to the CDFI
Fund, monthly, quarterly, and annually,
as specified in the Bond Documents,
and as long as the Bond shall remain
outstanding, such information and
documentation that will permit the
CDFI Fund to review compliance with
the Capital Distribution Plan and the
terms and conditions of the Bond
Documents, and to perform adequate
portfolio management and loan
monitoring. The information and
documentation may include, but not be
limited to, the following:
(1) Financial statements, including
but not limited to:
(i) Annual financial statements for the
Qualified Issuer and each Eligible CDFI
that have been audited in conformity
with generally accepted auditing
principles; and
(ii) With respect to any nonprofit
Qualified Issuer and any Eligible CDFI
that is required to have its financial
statements audited pursuant to OMB
Circular A–133 Audits of States, Local
Governments and Non-Profit
Organizations, annual A–133 audited
financial statements. Non-profit
Qualified Issuers and Eligible CDFIs that
are not required to have financial
statements audited pursuant to OMB
Circular A–133 must submit to the CDFI
Fund a statement signed by the
Qualified Issuer or Eligible CDFI’s
authorized representative or certified
public accountant, asserting that a
single audit pursuant OMB Circular A–
133 is not required;
(2) Pro forma projection of the
Qualified Issuer’s and Eligible CDFI’s
respective balance sheet, income
statement, and statement of cash flows
over the ensuing five years, or such
other time period as specified by the
CDFI Fund;
(3) Such institution-level and
transaction-level reports as may be
required by the CDFI Fund;
(4) Information necessary to measure
the financial condition of the Eligible
CDFI. This includes, but is not limited
to, measuring solvency by collecting
data on fixed charge coverage, capital
adequacy, debt coverage, and measuring
liquidity by collecting data on core
financial ratios, including current ratios,
quick ratios, working capital, and
operating liquidity ratio. This will also
include credit reporting, financial
statement analysis, trend analysis of
financial conditions, market valuation,
loan performance (30/60/90 payment
history) of Bond Loans and Secondary
Loans, valuation and eligibility of
Secondary Loan collateral, and
management and organization changes;
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(5) Information necessary to assess
Program impact performance and
outcome measures, including
information necessary to evaluate the
credit-worthiness of loan applicants;
and
(6) Other such information and
reports as may be requested by the CDFI
Fund.
(f) Qualified Issuer reports. Qualified
Issuers are responsible for the timely
and complete submission of all required
information and reports, even if all or a
portion of the documents actually are
completed by the Eligible CDFI. The
CDFI Fund reserves the right to contact
the Qualified Issuer or Eligible CDFI and
require that additional information and
documentation be provided.
(g) Regulator information. The CDFI
Fund’s review of a regulated Qualified
Issuer’s or regulated Eligible CDFI’s
performance or compliance with the
Bond Documents may also include
information provided by the
Appropriate Federal Banking Agency or
Appropriate State Agency, as the case
may be.
(h) Public inspection. The CDFI Fund
shall make reports described in this
section available for public inspection
after deleting any materials necessary to
protect privacy or proprietary interests
pursuant to all applicable laws and
regulations.
(i) Availability of referenced
publications. The publications
referenced in this section are available
as follows:
(1) OMB Circulars may be obtained
from the Office of Administration,
Publications Office, 725 17th Street
NW., Room 2200, New Executive Office
Building, Washington, DC 20503 or on
the Internet (https://
www.whitehouse.gov/omb/
grants_circulars/); and
(2) Government Accountability Office
materials may be obtained from GAO
Distribution, 700 4th Street NW., Suite
1100, Washington, DC 20548.
§ 1808.620 Investments in Guaranteed
Bonds ineligible for Community
Reinvestment Act Purposes.
Notwithstanding any other provision
of law, any investment by a financial
institution in Bonds shall not be taken
into account in assessing the record of
such institution for purposes of the
Community Reinvestment Act of 1977
(12 U.S.C. 2901). Other forms of
participation by financial institutions in
CDFI Bond Guarantee Program
transactions may be eligible for
inclusion in Community Reinvestment
Act records to the extent permitted by
the Appropriate Federal Banking
Agency.
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§ 1808.621 Conflict of interest
requirements.
(a) Provision of Bond Loans or
Secondary Loans to Affiliates. (1) A
Qualified Issuer or Eligible CDFI that is
not regulated by an Appropriate Federal
Banking Agency or Appropriate State
Agency may not use any Bond Proceeds
or Bond Loan proceeds to make any
Bond Loans or Secondary Loans
available to an Affiliate unless it meets
the following restrictions:
(i) The loan must be provided
pursuant to standard underwriting
procedures, terms and conditions;
(ii) The Affiliate receiving the loan
shall not participate in any way in the
decision-making regarding such loan;
(iii) The board of directors or other
governing body of the lender shall
approve the extension of the loan; and
(iv) The loan must be provided in
accordance with a policy regarding
credit to Affiliates that has been
approved in advance by the CDFI Fund.
(2) A Qualified Issuer or Eligible CDFI
that is an Insured CDFI, a Depository
Institution Holding Company or a StateInsured Credit Union (as such terms are
defined in 12 CFR 1805.104) shall
comply with the restrictions on insider
activities and any comparable
restrictions established by its
Appropriate Federal Banking Agency or
Appropriate State Agency, as
applicable.
(b) Standards of conduct. Qualified
Issuers, Eligible CDFIs, Program
Administrators, the Master Servicer, and
Servicers shall maintain a code or
standards of conduct acceptable to the
CDFI Fund that govern the performance
of employees engaged in the awarding
and administration of any loan. No
employee of a Qualified Issuer, Eligible
CDFI, Program Administrators, the
Master Servicer, and Servicer shall
solicit or accept gratuities, favors or
anything of monetary value from any
actual or potential borrowers for such
loans. Such policies shall provide for
disciplinary actions to be applied for
violation of the standards by employees.
§ 1808.622 Compliance with government
requirements.
In carrying out its responsibilities
pursuant to any agreements associated
with the CDFI Bond Guarantee Program,
all Qualified Issuers, Eligible CDFIs,
Program Administrators, Servicers, and
the Master Servicer/Trustee shall
comply with all applicable Federal,
State, and local laws, regulations, and
ordinances, OMB Circulars, and
Executive Orders, including restrictions
on lending to entities with delinquent
Federal debt.
E:\FR\FM\05FER3.SGM
05FER3
8328
§ 1808.623
Federal Register / Vol. 78, No. 24 / Tuesday, February 5, 2013 / Rules and Regulations
Lobbying restrictions.
No fees or funds made available under
this part may be expended by a party to
pay any person to influence or attempt
to influence any agency, elected official,
officer or employee of a State or local
government in connection with the
making, award, extension, continuation,
renewal, amendment, or modification of
any State or local government contract,
grant, loan or cooperative agreement as
such terms are defined in 31 U.S.C.
1352.
§ 1808.624
Criminal provisions.
tkelley on DSK3SPTVN1PROD with RULES3
The criminal provisions of 18 U.S.C.
657 regarding embezzlement or
misappropriation of funds are
applicable to all CDFI Bond Guarantee
Program participants and insiders.
VerDate Mar<15>2010
18:31 Feb 04, 2013
Jkt 229001
§ 1808.625
control.
CDFI Fund deemed not to
The CDFI Fund shall not be deemed
to control a CDFI Bond Guarantee
Program participant by reason of any
Guarantee provided under the Act for
the purpose of any applicable law.
§ 1808.626
Limitation on liability.
The liability of the Federal
Government arising out of any fees or
funds obtained by a CDFI Bond
Guarantee Program participant in
accordance with this interim rule shall
be limited to the amount of the fees or
funds obtained by the CDFI Bond
Guarantee Program participant. The
Federal Government shall be exempt
from any assessments and other
liabilities that may be imposed on
PO 00000
Frm 00034
Fmt 4701
Sfmt 9990
controlling or principal shareholders by
any Federal law or the law of any State.
Nothing in this section shall affect the
application of any Federal tax law.
§ 1808.627
Fraud, waste and abuse.
Any person who becomes aware of
the existence or apparent existence of
fraud, waste or abuse of any Guarantee,
Bond, Bond Loan or Secondary Loan
provided under this interim rule must
report such incidents to the Office of
Inspector General of the U.S.
Department of the Treasury.
Dated: January 24, 2013.
Donna J. Gambrell,
Director, Community Development Financial
Institutions Fund.
[FR Doc. 2013–02055 Filed 2–1–13; 8:45 am]
BILLING CODE 4810–70–P
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05FER3
]]>Agencies
[Federal Register Volume 78, Number 24 (Tuesday, February 5, 2013)]
[Rules and Regulations]
[Pages 8295-8328]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-02055]
[[Page 8295]]
Vol. 78
Tuesday,
No. 24
February 5, 2013
Part IV
Department of the Treasury
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Community Development Financial Institutions Fund
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12 CFR Part 1808
Guarantees for Bonds Issued for Community or Economic Development
Purposes; Final Rule
Federal Register / Vol. 78 , No. 24 / Tuesday, February 5, 2013 /
Rules and Regulations
[[Page 8296]]
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DEPARTMENT OF THE TREASURY
Community Development Financial Institutions Fund
12 CFR Part 1808
RIN 1559-AA01
Guarantees for Bonds Issued for Community or Economic Development
Purposes
AGENCY: Community Development Financial Institutions (CDFI) Fund,
Department of the Treasury.
ACTION: Interim rule with request for public comment.
-----------------------------------------------------------------------
SUMMARY: The Department of the Treasury is issuing the interim rule
implementing the Community Development Financial Institutions (CDFI)
Bond Guarantee Program, established through section 1134 of the Small
Business Jobs Act of 2010 and administered by the CDFI Fund, under
authority delegated by the Secretary of the Treasury.
DATES: Interim rule effective April 8, 2013. Comment due date: Comments
on the interim rule must be received in the offices of the CDFI Fund on
or before April 8, 2013.
ADDRESSES: All comments concerning the interim rule should be submitted
and viewed through the Federal e-Rulemaking Portal, https://www.regulations.gov. Comments may also be addressed to Lisa M. Jones,
Manager, CDFI Bond Guarantee Program, by mail to the CDFI Fund,
Department of the Treasury, 1500 Pennsylvania Avenue NW., Washington,
DC 20220; by email to cdfihelp@cdfi.treas.gov; or by facsimile at (202)
508-0090 (this is not a toll free number). Comments will be made
available for public review on the CDFI Fund's Web site at
www.cdfifund.gov.
FOR FURTHER INFORMATION CONTACT: Lisa M. Jones, Manager, CDFI Bond
Guarantee Program, CDFI Fund, at (202) 653-0421 (this is not a toll
free number). Information regarding the CDFI Fund and the CDFI Bond
Guarantee Program may be downloaded from the CDFI Fund's Web site at
https://www.cdfifund.gov.
SUPPLEMENTARY INFORMATION:
I. Executive Summary
A. Purpose of the Regulatory Action
1. The need for the regulatory action and how the action will meet
that need: The CDFI Bond Guarantee Program is authorized by section
1134 of the Small Business Jobs Act of 2010 (Pub. L. 111-240; 12 U.S.C.
4713a) (the Act), which requires the Secretary of the Treasury to
promulgate regulations to carry out that section of the Act.
Capitalized terms used herein and not defined elsewhere are defined in
section 1808.102 of the interim rule.
2. Statement of legal authority for the regulatory action: 12
U.S.C. 4713a (j)(1).
B. Summary of the Major Provisions of the Regulatory Action
1. General provisions: Subpart A (sections 1808.100-106) sets forth
the CDFI Bond Guarantee Program's purpose, summary, program
definitions, deviations, and relationship to other programs, among
other provisions.
2. Eligibility: Subpart B (sections 1808.200-202) sets forth
eligibility requirements and responsibilities for certain CDFI Bond
Guarantee Program participants, particularly the Qualified Issuer,
Designated Bonding Authority, and Eligible CDFIs.
3. Eligible activities: Subpart C (sections 1808.300-309) sets
forth the activities that are allowable under the CDFI Bond Guarantee
Program, as well as interest rates, terms and conditions for Bonds,
Bond Issues, the Risk-Share Pool, Bond Loans, Secondary Loans, and the
Relending Account.
4. Applications for Guarantee and Qualified Issuer: Subpart D
(sections 1808.400-401) sets forth the parameters of the Notice of
Guarantee Availability, the Guarantee Application (which includes the
Capital Distribution Plan), and the Qualified Issuer Application.
5. Evaluation and selection: Subpart E (sections 1808.500-504)
describes how the CDFI Fund will evaluate applications submitted by
certain interested parties.
6. Terms and conditions of Guarantee: Subpart F (sections 1808.600-
627) sets forth terms and conditions of the Guarantee, certain parties'
roles and duties, representations and warranties, covenants, and
reporting, conflict of interest, compliance, and other requirements.
II. Summary of Estimated Economic Benefits
----------------------------------------------------------------------------------------------------------------
Discounting by 3% Discounting by 7%
-------------------------------------------------------------------------------
$200 million $2 billion $200 million $2 billion
issuance issuance issuance issuance
----------------------------------------------------------------------------------------------------------------
COSTS
----------------------------------------------------------------------------------------------------------------
Government costs................ $19.9 million..... $28.8 million..... $13.4 million..... $18.6 million.
Eligible CDFIs.................. $4.6 million...... $45.7 million..... $4.2 million...... $41.9 million.
Low-Income communities.......... n/a............... n/a............... n/a............... n/a
----------------------------------------------------------------------------------------------------------------
TRANSFERS
----------------------------------------------------------------------------------------------------------------
Low-Income communities.......... $200 million...... $2 billion........ $200 million...... $2 billion.
----------------------------------------------------------------------------------------------------------------
III. Background
The Community Development Financial Institutions (CDFI) Bond
Guarantee Program is authorized by the Small Business Jobs Act of 2010
(Pub. L. 111-240; 12 U.S.C. 4713a) (the Act). Section 1134 of the Act
amended the Riegle Community Development and Regulatory Improvement Act
of 1994 (the Riegle Act) (12 U.S.C. 4701, et seq.) to provide authority
to the Secretary of the Treasury to establish and administer the CDFI
Bond Guarantee Program. Under authority delegated by the Secretary of
the Treasury, the CDFI Bond Guarantee Program is administered by the
Community Development Financial Institutions Fund (CDFI) Fund, a wholly
owned government corporation within the U.S. Department of the
Treasury. Pursuant to the Act the Secretary of the Treasury will
provide a Guarantee for the repayment of the full amount of the Bond
Issue, including the Verifiable Principal, Interest, and Call Premium,
issued to finance Bond Loans to Certified CDFIs for Eligible Community
or Economic Development Purposes for a period not to exceed 30 years.
The Bonds will support CDFI lending in Investment Areas by providing a
source of low-cost, long-term capital to Eligible CDFIs.
Consistent with the Office of Management and Budget (OMB)
[[Page 8297]]
Circular A-129 (Policies for Federal Credit Programs and Non-Tax
Receivables), Bonds issued pursuant to the CDFI Bond Guarantee Program
will be purchased by the Federal Financing Bank (FFB), a body corporate
and instrumentality of the Federal Government under the general
supervision and direction of the Secretary of the Treasury. As required
by the Act, the Guarantee will be fully assignable and transferable to
capital markets on terms and conditions that are consistent with
comparable Federal Government-guaranteed bonds and satisfactory to the
CDFI Fund, the Guarantor, and the FFB.
The interim rule creates the regulatory requirements and parameters
for CDFI Bond Guarantee Program implementation and administration
including, among others, Qualified Issuer eligibility, application
requirements, application review, selection criteria, Guarantee and
Bond Loan documentation, eligible uses of Bond Proceeds and Bond Loan
proceeds, terms and conditions, and reporting requirements. The CDFI
Fund seeks public comment on the entire interim rule.
IV. Responses to the Request for Public Comment
On July 1, 2011, the CDFI Fund published in the Federal Register a
Request for Public Comment (76 FR 38577) (the RPC), seeking public
responses to specific questions regarding CDFI Bond Guarantee Program
design, implementation, and administration. The CDFI Fund posed
specific questions regarding a number of issues, including the
following: how certain terms should be defined in the regulations; the
eligible uses of funds (specifically, whether there should be any
limitations on the types of loans that can be financed or refinanced
with Bond Proceeds); provisions of the Guarantee; the eligibility of
entities participating in the CDFI Bond Guarantee Program; and how the
CDFI Fund should determine that a Qualified Issuer has the appropriate
expertise, capacity, and experience to make Bond Loans for Eligible
Community or Economic Development Purposes.
The CDFI Fund received more than 60 comment letters in response to
the RPC. All comments have been reviewed by the CDFI Fund and have been
taken into consideration in the drafting of the interim rule. A summary
of the collective comments received in response to the RPC (as well as
the CDFI Fund's responses) follows.
A. Definitions
The Act requires that Bond Proceeds be used to make Bond Loans to
Eligible CDFIs and that those Eligible CDFIs use the Bond Loan proceeds
for Eligible Purposes. Such purposes include the various uses of
financial assistance authorized under the Riegle Act, as well as the
provision of community or economic development in ``low-income or
underserved rural areas.'' Comments were solicited as to how the CDFI
Fund should define those terms.
(1) Low-Income
With respect to defining Low-Income, the majority of comments
suggested that the U.S. Department of Housing and Urban Development
(HUD) definitions for States and Metropolitan Statistical Areas (MSAs)
should be followed, including HUD definitions that are not based on
census tracts. Other comments suggested that Low-Income should be
defined: (i) In alignment with definitions used in other CDFI Fund
programs such as the Community Development Financial Institutions
(CDFI) Program, the Native American CDFI Assistance (NACA) Program, and
the New Markets Tax Credit Program; (ii) as up to 120 percent of the
Area Median Income as defined by HUD; (iii) based upon low-income
school districts; (iv) based upon low wealth rather than income level;
or (v) using Federal banking agencies' definitions for determining
Community Reinvestment Act compliance.
The CDFI Fund's Response:
The CDFI Fund has adopted the definition of Low-Income that is set
forth in section 1808.102 of the CDFI Bond Guarantee Program interim
rule. This definition is in accordance with the Low-Income definition
found in the CDFI Program regulations at 12 CFR 1805.104(ee). The CDFI
Fund selected a definition of Low-Income that is: (i) a standardized
definition that is widely understood within the CDFI industry; (ii) a
definition that the CDFI Fund can independently verify because the CDFI
Fund has collected data under this definition over the past 10 years;
(iii) more inclusive and allows for more Low-Income areas to comply
with the CDFI Bond Guarantee Program; and (iv) consistent with the
eligibility criteria for other CDFI Fund programs.
(2) Underserved Rural Areas
Regarding the term Underserved Rural Areas, the majority of
comments suggested a definition consistent with the definition of
Investment Area or Targeted Population set forth in the CDFI Program
regulations (12 CFR 1805.104 (dd) and (kk), respectively). The majority
of comments suggested using the U.S. Department of Agriculture (USDA)
definition of Rural Areas. Other comments suggested that Rural Areas
should be defined using the Federal Financial Institutions Examination
Council definition for non-metro areas, and that the CDFI Fund should
include Colonias in the definition of Rural Areas even when they
otherwise fall within Metropolitan Statistical Areas (MSAs). Other
suggestions included using: all non-MSA or HUD Fair Market Rent areas;
the new Rural-Urban Commuting Area Codes definition established by the
Office of Rural Health Policy; or the 2008 Farm Bill definition of
Substantially Underserved Trust Areas.
The CDFI Fund's Response:
The CDFI Fund has adopted the definition of Underserved Rural Area
that is forth in section 1808.102 of the interim rule. This definition
is consistent with the definition of Investment Area as used in the
CDFI Program (at 12 CFR 1805.104(dd)) and the definition of non-
metropolitan as used in the New Markets Tax Credit Program. The CDFI
Fund selected a combined definition of Underserved Rural Area because
it is: (i) A standardized definition that is widely understood within
the CDFI industry; (ii) a definition that the CDFI Fund can
independently verify because the CDFI Fund has collected data under
these definitions over the past 10 years; (iii) more inclusive and
allows for more Low-Income areas to comply with the CDFI Bond Guarantee
Program; and (iv) consistent with the eligibility criteria for other
CDFI Fund programs.
B. Use of Funds
The Act requires that Bond Proceeds be used to make loans to
Certified CDFIs for Eligible Purposes.
(1) Eligible Uses of Bond Proceeds
The CDFI Fund requested comments regarding the authorized uses of
Bond Proceeds to finance Bond Loans. Specifically, comments were
invited regarding any limitations on the types of Bond Loans to be
financed, limitations on the percentage of Bond Loans that could be
used to refinance outstanding loans, and any other restrictions that
the CDFI Fund should impose on the Bond Loans such as interest rate and
fee restrictions.
The majority of comments were not in favor of limitations on the
types of Bond Loans that can be financed with the Bond Proceeds,
especially when the Bond Loans meet the provisions of the
[[Page 8298]]
Act and are similar in purpose to those that are permissible under
other programs, such as the Financial Assistance Component of the CDFI
Program.
The majority of comments indicated that there should not be any
limits on the percentage of Bond Loans that can be used to refinance
outstanding loans with the Bond Proceeds. A few comments suggested that
refinancing should be limited to 25 or 50 percent so as to encourage
focus on new projects. Some comments suggested that any refinanced
loans should meet minimum quality standards and should be non-
delinquent in order to be refinanced with Bond Proceeds.
The CDFI Fund's Response:
Bond Proceeds must be used by the Qualified Issuer to finance or
Refinance loans to Eligible CDFIs for Eligible Purposes as set forth in
sections 1808.301 and 1808.302 of the interim rule. The CDFI Fund will
not limit the amount of Bond Proceeds that the Qualified Issuer can use
to Refinance loans. The Qualified Issuer must have a Capital
Distribution Plan with the requisite Eligible CDFIs configured to on-
lend the Bond Loans to Secondary Borrowers. Eligible CDFIs must on-lend
the Bond Loans as Secondary Loans to Secondary Borrowers consistent
with the Secondary Loan Requirements established by the CDFI Fund and
defined in section 1808.102. The Secondary Loans must demonstrate a
repayment source and collateral provisions consistent with the
Secondary Loan Requirements.
(2) Eligible Uses of Bond Loan Proceeds
The CDFI Fund requested comments on the use of Bond Loan proceeds
by CDFIs: specifically, the authorization of revolving loan funds; the
permissibility of loan purchases with Bond Proceeds; and any other
restrictions that the CDFI Fund should impose.
The majority of comments indicated that eligible Bond Loan purposes
should include: (i) Capitalization of revolving loan funds; (ii)
capitalization of equity positions for regulated institutions; and
(iii) loan loss reserves, debt service reserves, and/or sinking funds
in support of a Federally guaranteed bond.
Comments showed unanimous support for permitting loan proceeds to
be used to purchase loans from other CDFIs. Comments also indicated
that the purchase of loans is an important liquidity and aggregation
mechanism and should be encouraged in order to increase capital flows
in the CDFI industry. Suggested restrictions included restricting
purchases to loans made after the enactment date of the Act, and
requiring that the majority of loan purchase proceeds should be used
for community development activities.
The CDFI Fund's Response:
The CDFI Fund selected eligible uses for the Bond Loan proceeds
that are consistent with the eligible uses of funds in the CDFI and
NACA Programs and the Act. Bond Loan proceeds must be used for Eligible
Purposes that include (i) The capitalization of Loan Loss Reserves in
an amount that is up to five percent of the par amount of the Bond
Loan; (ii) the financing or Refinancing for community or economic
development purposes described in 12 U.S.C. 4707 (b), which includes
community or economic development purposes in Low-Income Areas or
Underserved Rural Areas; (iii) prepaying one monthly installment of
Bond Loan payments, and (iv) paying Bond Issuance Fees. The CDFI Fund
included the capitalization of Loan Loss Reserves as an Eligible
Purpose with the provision that Eligible CDFIs must obtain a Principal
Loss Collateral Provision as collateral for this Eligible Purpose.
Additional limitations, special rules, procedures and restrictions will
be specified in the applicable Notice of Guarantee Availability (as
described in section 1808.400 of the interim rule), as well as the
Agreement to Guarantee, Bond Documents, and Bond Loan documents.
(3) Bond Proceeds Deployment; Relending Account; Risk-Share Pool
Pursuant to the Act, Qualified Issuers are required to use not less
than 90 percent of principal amount of a Bond (other than cost of Bond
Issuance Fees) to make loans within one year after the Bond Issue Date.
Not more than 10 percent of the maximum principal amount of a Bond may
be held in a Relending Account which may be made available for
additional loans for Eligible Purposes. Each Eligible CDFI must
contribute to a Risk-Share Pool equal to three percent of the principal
amount of the Bond. The CDFI Fund requested comments regarding the 90
percent loan requirement, use of the Relending Account, scope of the
Risk-Share Pool, and other measures that should be taken to minimize
the risk of loss to the Federal Government.
Commentators suggested that Qualified Issuers may face challenges
disbursing Bond Loans to CDFIs equal to 90 percent of the Bond
principal within one year. In their comments, they cited that CDFI
business models often provide binding permanent loan commitments to
small businesses and entities that engage in construction and
development financing. CDFIs lend to these entities under a total
commitment structure that includes draws on an as needed basis. In
addition, commentators indicated that a one-year deployment requirement
for 100 percent of Bond Loans would require: (1) CDFIs to have an
actual pipeline of loans; (2) immediate funding availability for the
pipeline of loans; and (3) CDFIs to close quickly on the loans.
Commenters indicated that it would be impractical for CDFIs to present
an actual pipeline as part of the Capital Distribution Plan, but to
instead require the Qualified Issuer to demonstrate a CDFI's intended
versus actual pipeline of loans. Under a one-year deployment rule,
CDFIs would face the undesirable prospect of having to develop a new
financing program hastily and then terminate it prematurely.
Commentators also suggested that most Qualified Issuers would be able
to close Bond Loan commitments within one year of the Bond Issue Date
but would require a period longer than one year, depending upon the
end-borrowers' needs, to disburse the Bond Loan funds.
The majority of commentators stated that the Relending Account
should be used to absorb and relend prepayments, permit early
refinancing, and facilitate maturities shorter than the Bond duration.
Some suggested that the Relending Account should be used for Bond
payments if a default occurs, and that the 10 percent Relending Account
should be calculated on a rolling-average basis.
Strong opinions were expressed against interest rate increases or
requiring specific restrictions, covenants, or conditions not
articulated in the statutory provisions. Some comments were in favor of
requiring a larger Risk-Share Pool. Many comments suggested a variety
of forms of supplemental credit enhancement. A ``one size fits all''
approach was not endorsed and several suggestions were made, including:
the purchase of insurance; collateral liens; increased rates on end
borrowers; and a ``repurchase structure'' where delinquent loans in an
asset-backed portfolio were replaced after 180 days. The majority of
the comments were in favor of allowing the Qualified Issuer to set
aside the three percent from the Bond Proceeds for financing of the
Risk-Share Pool. Some commentators suggested that they favored flexible
systems allowing for various funding streams, e.g., surety or escrow
from the issuer pending approval of application, third party funding,
or cash flows from investment.
[[Page 8299]]
The CDFI Fund's Response:
The CDFI Fund will require the Qualified Issuer to execute Bond
Loan agreements for not less than 100 percent of the Bond principal on
the Bond Issue Date. If the Eligible CDFI uses Bond Loan proceeds to
make Secondary Loans, the Eligible CDFI must execute Secondary Loan
documents (in the form of promissory notes) with Secondary Borrowers,
as follows: (i) not later than 12 months after the Bond Issue Date,
Secondary Loan documents representing at least 50 percent of such
Eligible CDFI's Bond Loan proceeds allocated to Secondary Loans, and
(ii) not later than 24 months after the Bond Issue Date, Secondary Loan
documents representing 100 percent of such Eligible CDFI's Bond Loan
proceeds allocated to Secondary Loans (excluding any amounts used for
payment of Bond Issuance Fees pursuant to section 1808.304(b)).
The CDFI Fund defines the Relending Account and the Capital
Distribution Plan in section 1808.102 of the interim rule.
The Risk-Share Pool, described in 12 U.S.C. 4713a(d), must be
funded by the Eligible CDFIs. The CDFI Fund will not allow the Bond
Proceeds, or funds received from other CDFI Fund programs, to be used
to fund the Risk-Share Pool. The CDFI Fund defines the Risk-Share Pool
in section 1808.102 of the interim rule.
If the CDFI Fund determines that there is a need for protections to
mitigate the risk of loss to the Federal Government, the CDFI Fund may
require in the terms and conditions of the Guarantee that the Qualified
Issuer implement various tools, in addition to the Risk-Share Pool, to
compensate for risk which may include, but not be limited to, requiring
the Eligible CDFI to provide for third-party Credit Enhancements.
C. Guarantee Provisions
The Act provides for a 100 percent guarantee for bonds issued as
part of a Bond Issue under the CDFI Bond Guarantee Program. Consistent
with the Office of Management and Budget (OMB) Circular A-129 (Policies
for Federal Credit Programs and Non-Tax Receivables), these bonds will
be purchased by the Federal Financing Bank (FFB). The CDFI Fund
requested comments regarding potential loss remedies prior to the Bond
Purchaser seeking reimbursement under the Guarantee, as well other any
other terms, conditions, or Bond structure requirements that should be
imposed to protect the taxpayer.
The majority of comments stated that the CDFI Fund should work with
the Qualified Issuer, aggregators (designated entities acting on behalf
of the Qualified Issuers), and originators and Servicers of loans to
exercise all rights and remedies available under law before calling the
Guarantee. Some comments suggested that, for non-performing assets
underlying a Bond, the CDFI Fund should consider using special
servicers to deal with these assets. Recommended remedies include the
substitution of non-performing assets, liquidation of underlying
collateral, liquidation of risk-share and supplemental credit reserves,
and the exercise of recourse.
The majority of comments stated that the CDFI Fund should not set
specific guidelines for the structure of the Bonds. It was suggested
instead that the CDFI Fund should allow the marketplace to encourage
the development of models for structuring the Bonds. Commentators
recommended that the CDFI Fund require Qualified Issuers to issue Bonds
of $100,000,000 or more, but allow them to make incremental drawdowns
of Bond Proceeds. Some comments suggested that Bonds could be issued in
smaller increments as part of one application, as long as each
Guarantee covered no less than $100,000,000 of Bonds.
The CDFI Fund's Response:
The CDFI Fund defines Verifiable Losses of Principal, Interest, and
Call Premium in section 1808.102 of the interim rule. When the
Qualified Issuer has delinquent payments, the CDFI Fund and the
Guarantor will exercise all available rights and remedies to protect
the Federal Government's interests.
With regard to the structure of the Bond, the CDFI Fund will allow
a Qualified Issuer to utilize multiple Bond Loans to CDFIs to meet the
$100,000,000 minimum Guarantee requirement of the Act. However, each
Bond Loan must be a minimum of $10,000,000.
D. Eligible Entities
The Act defines Eligible CDFI at 12 U.S.C. 4713a(a)(1) as a CDFI
certified by the Secretary that has applied to the Qualified Issuer
for, or been granted by a Qualified Issuer, a loan under the program,
and authorizes the CDFI Fund to determine which entities may serve as
Qualified Issuers and Master Servicer. The CDFI Fund requested comments
regarding the criteria that should be used to approve entities to
participate in the CDFI Bond Guarantee Program. Specifically, the CDFI
Fund solicited comments on the number of Qualified Issuers and Master
Servicers that should be approved under the CDFI Bond Guarantee
Program, as well as any eligibility criteria that should be applied to
Eligible CDFIs beyond CDFI certification.
The majority of commentators indicated that they were not in favor
of the CDFI Fund requiring only one Qualified Issuer for all Bonds
issued under the CDFI Bond Guarantee Program. Respondents stated that
this requirement would be an unnecessary limitation that would prevent
multiple CDFIs from serving as Qualified Issuers. Comments suggested,
however, that it may be effective to have one Qualified Issuer issue
most of the Bonds initially. There were mixed views regarding whether
the CDFI Fund should permit an entity that is not a Certified CDFI to
apply for CDFI certification simultaneously with submission of a
Guarantee Application and a Capital Distribution Plan. The majority of
commentators stated that only a CDFI that has been designated as a
Certified CDFI prior to the applicable Guarantee Application deadline
should be allowed to participate in the program. In contrast, some
commentators stated that the CDFI Fund should permit non-certified
entities the ability to apply to the CDFI Bond Guarantee Program while
these entities pursue CDFI certification. The majority of commentators
stated that the CDFI Fund should allow all existing CDFIs (or their
designees) that are Certified CDFIs in good standing to apply to the
CDFI Bond Guarantee Program. Respondents were consistent in stating
that a CDFI that applies to the CDFI Bond Guarantee Program should
demonstrate strong financial and capital positions, as well as a
significant and sustained track record of economic development in Low-
Income communities. Many respondents requested that the CDFI Fund
require that Eligible CDFIs be certified by the CDFI Fund for a period
of at least two to three years.
The majority of commentators indicated that CDFIs should be allowed
to service their own Bond Loans and the CDFI Fund should not require
one Servicer for all Bonds issued under the CDFI Bond Guarantee
Program. The comments suggested that the CDFI Fund should instead
choose to limit the number of Servicers in order to keep program costs
low. Comments were in favor of the CDFI Fund requiring the Master
Servicer and Servicers to have a track record of providing similar
services, and they stated that a key factor in determining CDFI Bond
Guarantee Program success will be the level and skill of the Servicers
responsible for remitting principal and
[[Page 8300]]
interest payments on the Bonds. It was proposed that the Master
Servicer should be rated by a national rating agency and should have
broad experience in servicing community development needs. In addition,
some commentators stated that the CDFI Fund should pre-qualify the
Master Servicer and make it known to CDFIs prior to submission of a
Guarantee Application. Respondents were in favor of a CDFI being
allowed to serve as its own Servicer, and they cited that the unique
asset and/or borrower characteristics provide strength to CDFIs with
respect to their loan servicing capabilities. Comments also suggested
that the CDFI Fund should recognize a consortium of non-profit
entities, led by a certified CDFI, as an eligible applicant.
The CDFI Fund's Response:
The CDFI Fund has defined the criteria for Qualified Issuers and
the Master Servicer in section 1808.200 and section 1808.606,
respectively, of the interim rule. The CDFI Fund considered the
servicing capabilities of the CDFI industry when defining the criteria
for Qualified Issuers. As a result, the CDFI Fund will allow the
Qualified Issuer to provide, in its Qualified Issuer Application,
information on the proposed Servicer for each Bond Issue. In response
to commenters request to keep the program costs low, the CDFI Fund will
only allow one Master Servicer/Trustee for the CDFI Bond Guarantee
Program.
The CDFI Fund may also select a Designated Bonding Authority (DBA)
to serve as a Qualified Issuer for CDFIs seeking Bond Loans that do not
wish to designate their own Qualified Issuer and/or that cannot alone
prepare a Capital Distribution Plan that meets the requirements for
participation in the CDFI Bond Guarantee Program. A DBA will be
prequalified as meeting the requirements for Qualified Issuers by the
CDFI Fund; however, a Guarantee Application submitted by a DBA will not
receive any preference in the selection process. The qualifications for
a DBA are described in section 1808.201 of the interim rule. The DBA
will be selected in accordance with section 1808.502, which requires
interested parties to submit a Qualified Issuer Application in response
to the applicable Notice of Guarantee Availability.
Eligible CDFIs must be certified by the CDFI Fund and must meet the
requirements set forth in section 1808.202 of the interim rule.
E. Capital Distribution Plan
There were multiple recommendations as to what applicants should be
required to submit in their Capital Distribution Plans. Comments were
consistent in suggesting that the CDFI Fund should require applicants
to detail (in a Capital Distribution Plan) their fixed and ongoing
costs of deploying capital, including a detailed breakdown of the uses
of funds, which would entail the 90 percent or greater portion of Bond
Proceeds used to make Bond Loans for Eligible Purposes and managing a
multitude of CDFI entities. In addition, respondents suggested that a
detailed breakdown of uses of the remaining portion of Bond Proceeds
should be submitted. Comments stated that the CDFI Fund should not
impose a limit on the number of Bonds and Guarantees for which
Qualified Issuers are allowed to apply or qualify; however, it was
suggested that the CDFI Fund implement the CDFI Bond Guarantee Program
in a broad manner that would potentially mitigate a concentration among
too small a number of participants. In general, commentators
recommended that, in their respective Capital Distribution Plans,
applicants should demonstrate an intended pipeline of underlying assets
as well as the ability to service the Bond based on the expected terms
and conditions of the assets in the pipeline. Respondents were
consistent in stating that the CDFI Fund should not set minimum
underwriting criteria for borrowers.
The CDFI Fund's Response:
The CDFI Fund defines Capital Distribution Plan in section 1808.102
of the interim rule. The CDFI Fund will require the Qualified Issuer to
execute Bond Loan agreements for no less than 100 percent of the Bond
Proceeds on the Bond Issue Date. If the Eligible CDFI uses Bond Loan
proceeds to make Secondary Loans, the Eligible CDFI must execute
Secondary Loan documents (in the form of promissory notes) with
Secondary Borrowers as follows: (i) not later than 12 months after the
Bond Issue Date, Secondary Loan documents representing at least 50
percent of such Eligible CDFI's Bond Loan proceeds allocated for
Secondary Loans, and (ii) not later than 24 months after the Bond Issue
Date, Secondary Loan documents representing 100 percent of such
Eligible CDFI's Bond Loan proceeds allocated for Secondary Loans
(excluding any amounts used for payment of Bond Issuance Fees pursuant
to section 1808.304(b)).
A Qualified Issuer may apply for and receive more than one
Guarantee under the CDFI Bond Guarantee Program; provided, however,
that the Qualified Issuer must demonstrate in subsequent Guarantee
Applications that all prior Bonds have been issued and executed as Bond
Loans in accordance with the applicable Guarantee Application, Capital
Distribution Plan, and Bond Documents.
F. Accountability of Qualified Issuers
Comments indicated a considerable push for allowing flexibility
with regard to mandating the performance outcomes of the Qualified
Issuer. Comments were in favor of accountability measures, including
the submittal of an annual report, but did not indicate the need for
any additional reporting. In addition, commentators agreed that all
risk share, credit, and liquidity reserves should be included in
calculating the annual percentage of Bond principal used to make Bond
Loans. Comments expressed a key interest in ensuring that the CDFI Fund
shows consistency across its various program areas. Some respondents
expressed a need for the CDFI Fund to provide continuous training
opportunities on compliance and reporting requirements for the CDFI
Bond Guarantee Program.
The CDFI Fund's Response:
Subsequent to publication of the interim rule, the CDFI Fund will
provide outreach and training on the application process, compliance,
and reporting requirements as defined in subsection 1808.619 for
Qualified Issuers and Eligible CDFIs. To be eligible to participate in
the CDFI Bond Guarantee Program, the CDFI Fund will require Qualified
Issuers and Eligible CDFIs applicants that are prior awardees/
allocatees of the CDFI Fund to be compliant under their assistance,
allocation, or award agreements under all other CDFI Fund programs at
the time of submission of the Guarantee Application. The CDFI Fund will
not include the three percent Risk-Share Pool or any additional
reserves in calculating the requirements of the Capital Distribution
Plan.
G. Prohibited Uses
Commentators generally did not express a desire for additional
mandates regarding prohibited uses. Commentators did advise, however,
that the CDFI Fund adopt, as a model, the rules of the Financial
Assistance Component of the CDFI Program, which permit a wide range of
financing activities and allow for flexibility and innovation.
[[Page 8301]]
The CDFI Fund's Response:
The CDFI Fund selected Eligible Purposes that are consistent with
the eligible uses of funds under the CDFI Program, NACA Program, and
the Act. Uses of Bond Proceeds must be consistent with Eligible
Community or Economic Development Purposes defined in 12 U.S.C.
4713a(a)(2) and sections 1808.301 and 1808.302 of the interim rule.
The CDFI Fund prohibits certain uses of the Bond Proceeds as set
forth in 12 U.S.C. 4713a(c)(5) and section 1808.309 of the interim
rule. The CDFI Fund prohibits the use of Bond Proceeds to fund the
Risk-Share Pool to further incentivize Eligible CDFIs to perform
quality underwriting of Secondary Loans and repayment of Bond Loans.
Other risk mitigations include Eligible CDFIs providing collateral and
full recourse obligations to receive Bond Loans.
H. Servicing of Transactions
Commentators expressed an interest in limiting the duties of the
CDFI Fund to the general administration and management of the CDFI Bond
Guarantee Program, and stated that the CDFI Fund should not be involved
in a Bond transaction. There were split opinions regarding the
requirement that each Qualified Issuer have a designated Program
Administrator.
The CDFI Fund's Response:
The CDFI Fund addresses the aforementioned concerns in the interim
rule, which delineates the roles of the CDFI Fund, the Guarantor,
Program Administrators, and Qualified Issuers. The CDFI Fund will issue
a solicitation to select the Master Servicer/Trustee, which will serve
as a fiduciary, maintain funds and accounts, serve as the Special
Servicer, oversee the Servicers, provide loan monitoring and reporting,
and perform the duties described in 12 U.S.C. 4713a(f)(4) and section
1808.606 of the interim rule.
I. General Compliance
The majority of comments indicated that annual financial statements
and a report of asset or portfolio performance should be collected and
reviewed by the Master Servicer. A range of recommendations were made
for the types of reports that should be submitted, including:
institution level reports; disbursement reports; and a report verifying
that Bond Proceeds are used for Eligible Purposes. With respect to the
Act's mandate regarding repayment of Bonds, respondents stated that
there should be a cure period of 90 days before action is taken. After
the 90-day period, part of the Risk-Share Pool should be released to
meet Bond terms in a way that preserves the outstanding Bond
characteristics, such as coupon and term. Further, it was recommended
that the CDFI Fund should retain the right to extend the cure period as
deemed necessary and appropriate. Comments advised that before the CDFI
Fund imposes penalties on a Qualified Issuer for noncompliance, the
CDFI Fund should work collaboratively to resolve the issue and have a
menu of additional options available for resolution. Suggested options
included written notification, suspension from participation, and
requiring repayment of the Bond, depending on the seriousness of the
infraction and circumstances. These actions should be undertaken after
a 90-day cure period.
The CDFI Fund's Response:
Qualified Issuers must provide information requested by the CDFI
Fund as described in section 1808.619 of the interim rule and be
subject to periodic on-site audits by the CDFI Fund or its designee as
needed to determine compliance with the requirements of the CDFI Bond
Guarantee Program. The CDFI Fund will not exempt the Qualified Issuer
from complying with all applicable Federal, State, and local laws,
regulations, ordinances, OMB Circulars and Executive Orders. Bond
payments must be made in accordance with the terms and conditions of
the underlying Bond documents. Qualified Issuers will be required to
include disclosure statements in all Bond Loan documents that identify
the obligations of the parties to comply with the applicable statutes
and regulations.
J. General Comments
The majority of comments stated that CDFI Bond Guarantee Program
rules should be written to allow for maximum program flexibility. This
includes a wide variety of issues such as: Multiple structures (special
purpose entities and single-issuers); allowance of proceeds for lending
and equity capital, loan loss reserves, and refinancing; flexible
definitions of Eligible Purposes; allowing revolving loan funds in the
program structure that meet the 90 percent loan requirement; and
allowing for smaller tranches of issuances as part of a total
$100,000,000 package. Respondents stated that the CDFI Bond Guarantee
Program regulations should foster immediate operability in the interest
of time to expedite the issuance of Bonds. In addition, comments stated
that requirements such as reporting and eligibility should align with
other CDFI Fund programs such as the Financial Assistance Component of
the CDFI Program.
Several respondents raised a concern about the need to prepare
CDFIs for access to mainstream financial institutions and capital
markets. With respect to rulemaking, commentators stated that the
regulations should not carry limiting constraints or be unnecessarily
complicated such as requiring burdensome credit enhancements, agency
credit ratings, or preset underwriting criteria.
The CDFI Fund's Response:
The CDFI Fund agrees that the CDFI Bond Guarantee Program has the
potential to provide expansive opportunity by offering low-cost capital
to CDFIs. However, the CDFI Fund recognizes the need to balance
flexibility for program participants against the need to mitigate risk
to the taxpayer, and stay within the confines of various existing
statutes, regulations, and guidance documents including, but not
limited to, the Riegle Community Development and Regulatory Improvement
Act of 1994, the Small Business Jobs Act of 2010, the Federal Credit
Reform Act of 1990, as amended, and OMB Circular A-129 (Policies for
Federal Credit Programs and Non-Tax Receivables). The CDFI Fund will
develop and promulgate Bond Loan Requirements and Secondary Loan
Requirements.
V. Rulemaking Analysis
A. Executive Order (E.O.) 12866; Regulatory Impact Analysis
It has been determined that the interim rule of the CDFI Bond
Guarantee Program is a significant regulatory action as defined in
Executive Order 12866 in that the program will result in an annual
effect of $100 million of more on the economy. Accordingly, the interim
rule has been reviewed by the Office of Management and Budget. The
Regulatory Impact Analysis prepared by the CDFI Fund for the interim
rule is provided below.
1. Description of Need for the Regulatory Action
The CDFI Bond Guarantee Program was authorized by the Small
Business Jobs Act of 2010 (Pub. L. 111-240) (the Act), passed by
Congress and signed into law by the President on September 27, 2010.
Sections 1134 and 1703 of the Act provide authority to the Secretary of
the Department of the Treasury to establish the program by regulation,
which will be administered by the CDFI Fund, a wholly owned government
corporation within the U.S. Department
[[Page 8302]]
of the Treasury, pursuant to authority delegated by the Secretary of
the Treasury.
The Act authorizes the Secretary to guarantee the full amount of
Bonds, including the principal, interest, and call premiums, with terms
not to exceed 30 years, issued to finance or refinance loans for
Eligible Community or Economic Development Purposes. The Bond Issues
will support CDFI lending and investment in Investment Areas by
providing a source of low-cost, long-term capital to CDFIs. The Act
provides that the Secretary of the Treasury will not issue more than
ten Guarantees in any calendar year. No Guarantee amount may be less
than $100,000,000, provided the total principal amount of guaranteed
Bond Issues outstanding for any one fiscal year may not exceed $1
billion.
2. Provision--Affected Populations
The CDFI Fund was established through the Riegle Community
Development and Regulatory Improvement Act of 1994 (Pub. L. 103-325)
for the purpose of promoting economic and community development through
investment in and assistance to CDFIs. The two target populations
served by the CDFI Fund that will be affected by the CDFI Bond
Guarantee Program are (i) Certified CDFIs and (ii) rural and urban Low-
Income communities served by Certified CDFIs throughout the United
States.
Certified CDFIs are specialized, community-based financial
institutions that serve rural and urban Low-Income communities or work
in economically distressed areas, often operating in market niches that
may be underserved by traditional financial institutions. Only
financial institutions certified by the CDFI Fund can receive financial
assistance awards through the CDFI Program and the NACA Program.
Certified CDFIs include depository institutions such as community
development banks, thrifts, and credit unions; and non-depository
institutions such as loan and venture capital funds. Certified CDFIs
provide a wide range of financial products and services in Low-Income
Areas.\1\ While the types of products made available are generally
similar to those provided by mainstream financial institutions (such as
small business lending and lending for community facilities and
commercial real estate development), Certified CDFIs often lend to and
make equity investments in markets that may not be served by mainstream
financial institutions. In addition, Certified CDFIs may offer rates
and terms that are more flexible to Low-Income borrowers. Certified
CDFIs also provide services that help ensure that credit is used
effectively, such as technical assistance to small businesses, and home
buying and credit counseling to consumers.
---------------------------------------------------------------------------
\1\ The terms Low-Income and Low-Income Area are defined in
section 1808.102 of the interim rule. These definitions may be
different from those used in the economic studies cited hereafter.
For specific definitions related to the studies, please refer to the
cited articles.
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As of April 2012, there were over 980 Certified CDFIs (including
Certified CDFI banks and their Certified CDFI bank holding companies)
that provide financial products and services to underserved populations
and distressed communities in the United States. A thorough analysis
was conducted of a subset of 904 Certified CDFIs, excluding bank
holding companies, to compile consistent asset data on this population,
which is reported below. These 904 Certified CDFIs are financial
institutions that have average total assets of $55.6 million (although
average asset size varies by institution type).
a. Community development loan funds (CDLFs) constitute about 66
percent of Certified CDFIs and have average assets of about $19.9
million. CDLFs are usually nonprofits that provide financing and
development services to businesses, organizations and individuals in
Low-Income urban and rural areas. CDLFs can be further categorized
based on the type of clients served, such as microenterprises, small
businesses, housing, and community service organizations (e.g., health
care providers, charter school operators).
b. Community development credit unions (CDCUs) constitute about 22
percent of Certified CDFIs and have average assets of $66.9 million.
CDCUs are nonprofit cooperatives owned by members that promote
ownership of assets and savings and provide affordable credit and
retail financial services to Low-Income people.
c. Community development banks and bank holding companies
constitute about nine percent of Certified CDFIs and have average
assets of $298.3 million. CDFI banks provide capital to rebuild
economically distressed communities through targeted lending and
investment and the provision of financial services to community
residents and business owners.
d. Community development venture capital funds constitute about
three percent of all Certified CDFIs, have average assets of $9.7
million, and include both for-profit and nonprofit organizations that
provide equity and debt-with-equity features for businesses in
distressed communities.
A preliminary analysis conducted by the CDFI Fund shows that
Certified CDFIs that are large enough to deploy at least $10 million in
new lending to Low-Income communities are the most likely participants
in the CDFI Bond Guarantee Program. The rationale is that only larger
CDFIs will be able to absorb and deploy $10 million in new capital. In
particular, non-profit CDFI loan funds are expected to be the primary
participants in the CDFI Bond Guarantee Program.
a. Analysis of CDFI Fund awardees. First, the CDFI Fund used its
Community Investment Impact System (CIIS), which collects data from
CDFIs that have received awards from the CDFI Fund. CDFI Program and
NACA Program awardees are required to report total portfolio and
financial data for three years. A total of 68 Certified CDFI loan funds
were identified that provided consistent data for a five year period
from 2006 to 2010 on assets, new lending, and type of lending. The
results showed that a total of 59 CDFI loan funds out of the 68
originated more than $10 million in loans. These 59 loan funds, that
annually originated more than $10 million in loans, had assets that
ranged from $25 million to nearly $400 million. As a result, a cutoff
point of a minimum of $25 million in assets was established as a
preliminary estimate of the threshold to participate in the CDFI Bond
Guarantee Program. Due to data limitations, this estimate is based on a
sample of CDFI awardees and not on the total universe of Certified
CDFIs. However, given the lack of data on non-awardee Certified CDFIs,
it is possible there are eligible CDFIs below the $25 million threshold
capable of participating in the CDFI Bond Guarantee Program.
b. Analysis of CDFI Fund Certified CDFIs. Second, the CDFI Fund
certification database was used to query the number and type of
Certified CDFIs that had assets over $25 million. A total of 243
Certified CDFIs have assets over $25 million, including 77 CDFI banks,
74 credit unions, 91 loan funds, and one venture capital fund. This
group is a sample of potential participants in the CDFI Bond Guarantee
Program.
[[Page 8303]]
Table 1--CDFIs With More Than $25 Million in Assets
--------------------------------------------------------------------------------------------------------------------------------------------------------
Share of Minimum asset Maximum asset
CDFI type Count Share % Sum of assets assets % Average assets size size
--------------------------------------------------------------------------------------------------------------------------------------------------------
Bank or Thrift........................... 77 32 $24,705,263,619 53 $320,847,579 $26,655,000 $2,144,987,000
Credit Union............................. 74 30 12,589,364,746 27 170,126,551 26,456,363 1,623,228,958
Loan Fund................................ 91 37 9,073,961,136 20 99,713,859 25,379,706 1,424,547,537
Venture Capital Fund..................... 1 0 59,151,038 0 59,151,038 59,151,038 59,151,038
--------------------------------------------------------------------------------------------------------------------------------------------------------
Grand Total.......................... 243 100 46,427,740,539 100 191,060,661 25,379,706 2,144,987,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: CDFI Fund Community Investment Impact System (CIIS) and Certification Database.
a. Targeted Populations. In general, Certified CDFIs primarily
serve Low-Income communities and Low-Income targeted populations. A
Certified CDFI's Investment Area is defined as a geographic unit
(state, county, census tract, block group, Indian/Native areas), or as
contiguous geographic units entirely located within the United States
that meets one of the following criteria:
(1) Has a population poverty rate of at least 20 percent;
(2) has an unemployment rate 1.5 times the national average;
(3) for a Metropolitan Area, has a median family income (MFI) at or
below 80 percent of the greater of either the Metropolitan or national
Metropolitan MFI;
(4) for a non-Metropolitan area, has an MFI at or below 80 percent
of the greater of either the Statewide or national Non-Metropolitan
MFI;
(5) is wholly located within an Empowerment Zone or Enterprise
Community; or
(6) has a county population loss greater than or equal to 10
percent between the two most recent census periods for Metropolitan
Areas or five percent over last five years for Non-Metropolitan areas.
Under these criteria, there are 27,275 census tracts (41 percent)
that qualify as CDFI investment areas out of 66,285 total census tracts
in U.S. Of these, 22,360 are Metropolitan census tracts and 4,915 Non-
Metropolitan census tracts. There are 269 counties that qualify as a
result of the combined impact of the population loss and outmigration
criteria. Based on the most recent three-year of reporting by CDFIs
awardees, about 20 percent of eligible census tracts are served;
however, no transactional lending and investment data is available from
Certified non-awardee CDFIs and therefore no estimates of lending in
target markets can be provided for four-fifths of Certified CDFIs.
However, it is noteworthy that CDFI investment areas and target
markets are highly correlated with the distressed and underserved areas
as defined in the Community Reinvestment Act.\2\ In general, Certified
CDFIs provide financial products and services in areas that are
historically underserved by mainstream depository institutions.
---------------------------------------------------------------------------
\2\ https://www.ffiec.gov/craadweb/naaginfs.htm.
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b. Financial products offered by CDFIs. According to the CDFI Fund
Agency Financial Report for Fiscal Year 2012, CDFIs originated over
$1.3 billion in loans in 2011. Of these, 15.6 percent were commercial
real estate originations, which included investments in charter schools
and community facilities such as health clinics, employment and
training facilities, and centers that provide services for low-income
children and youth. In addition, 28 percent of these annual
originations supported small businesses and microenterprises, including
support for business incubators. In 2011, CDFIs also financed over
24,000 affordable housing rental units. The majority of these
investments were located in very Low-Income communities where lending
for community infrastructure is limited.
3. Description of the problem.
The availability of long-term debt and equity capital for CDFIs,
particularly non-profit loan funds, is one of the major structural
issues facing the CDFI industry. Certified CDFIs face challenges
accessing long term capital to support their lending and investment;
such challenges are related to broader structural impediments faced by
Low-Income communities in accessing affordable and appropriate
financial services.
Certified CDFIs traditionally receive grants, loans, and other
forms of financing from various sources, notably banks incentivized by
the Community Reinvestment Act (CRA). However, that capital tends to be
short- or medium-term, and expensive as compared to products non-CDFI
or for-profit lenders can obtain.\3\ Lenders and investors to Certified
CDFIs typically provide Certified CDFIs with capital that has
maturities of ten years or less. As a result, Certified CDFIs endure
asset liability mismatches when they offer longer term lending products
(i.e., mortgages) to their target borrowers.
---------------------------------------------------------------------------
\3\ Charles Tansey, Michael Swack, Michael Tansey, Vicky Stein.
Capital Markets, CDFIs, and Organizational Credit Risk, Carsey
Institute, University of New Hampshire, Durham, New Hampshire, p.
37.
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According to an analysis by the Carsey Institute at the University
of New Hampshire, which was prepared for and funded by the CDFI Fund,
``the lack of long-term debt financing forces CDFIs to [save cash]
pushing down leverage and giving the appearance that many
underleveraged CDFIs are not lending as much as they could, thus
neglecting demand among its targeted consumers.'' \4\ Certified CDFI
loan funds are generally not well leveraged, possibly reflecting the
cost of debt available to them. Additionally, the non-profit status of
many CDFIs also means that they do not enjoy the tax benefits of debt
leverage which for-profit financial institutions are able to take
advantage of. According to the Carsey analysis, ``[p]articularly among
loan funds, a large number of CDFIs have very little leverage (i.e.,
they fund themselves mainly through net assets, not debt). The median
CDFI loan fund in 2009 was leveraged at just $1.10 in liabilities for
every $1 in net assets. About eight percent of loan funds had no
liabilities whatsoever. Banks and credit unions are typically leveraged
at a rate of 10:1 or more.'' \5\
---------------------------------------------------------------------------
\4\ Michael Swack, Jack Northrup, and Eric Hangen. CDFI Industry
Analysis, Spring 2012. Carsey Institute, University of New
Hampshire, Durham, New Hampshire, p. 15.
\5\ Michael Swack, Jack Northrup, and Eric Hangen. CDFI Industry
Analysis, Spring 2012. Carsey Institute, University of New
Hampshire, Durham, New Hampshire, p. 10.
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The reasons behind the lack of access to long-term debt available
in capital markets are complex; however, a market-based approach
focuses on one key element: the risk of Certified CDFIs. Capital
markets typically rely on the credit ratings by rating agencies to
determine the interest rate and terms of
[[Page 8304]]
an investment. According to Tansey et al., the inability of credit
rating agencies to accurately assess credit risk of CDFIs is due to:
the absence of standardized data of risk performance; the lack of
consistent audited financials limiting the ability to discern assets,
specifically cash, available for repayment; the need for the
development of comparable ratios to analyze financial health; Certified
CDFIs' willingness to engage in non-conventional lending; and, the
perceived risk of lending to Low-Income communities. Such challenges
result in proposed investments to CDFIs that are unrated or rated as
below investment grade, thus not attractive to the capital markets.
a. Distributional issues in provision of financial services in Low-
Income Areas. The risk of lending to Certified CDFIs and ultimately to
Low-Income communities is steeped in the chronic distributional gaps in
the provision of financial services and products to Rural and urban
Low-Income Areas of the United States, thus contributing to limited
credit risk information for mainstream financial institutions to
underwrite new activity in these communities. The lack of credit
information for many Low-Income households in addition to smaller loan
sizes typical of Low-Income communities often results in higher
transaction costs for current lending. In addition, the substantial
lack of data and higher costs in serving these communities also
inhibits the access to long-term capital for CDFIs that serve these
communities.
In rural areas, lack of access also stems from the more limited
deal flows, limited supporting infrastructure, and the difficulty of
providing oversight for sparsely populated areas. Furthermore, CDFI
investments are often characterized by the small scale of individual
transactions and the perception of a high degree of risk.\6\
---------------------------------------------------------------------------
\6\ Michael Swack, Jack Northrup, and Eric Hangen. CDFI Industry
Analysis. Spring 2012. Carsey Institute, University of New
Hampshire, Durham, New Hampshire, p. 14. Available at https://www.cdfifund.gov/docs/CBI/2012/Carsey%20Report%20PR%20042512.pdf.
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Using census panel data on economically distressed areas,
persistent poverty has been located in the same geographic areas for
over half a century, including the lower Mississippi Delta, areas along
the Rio Grande, and traditional Native American territories in the
West.\7\ Many households in persistent poverty counties are
``unbanked'' and have little or no credit score information because
they may operate with cash in the informal economy; many live in areas
characterized by poverty rates of more than 20 percent. About three
quarters of persistent poverty areas reflect the minority status of
their populations, showing a concentration of persistent poverty, low
incomes, and lack of financial services in minority communities.
According to the Economic Research Service (ERS) at the U.S. Department
of Agriculture (USDA), of the 442 ``high-poverty counties in 2000
(based on 1999 income), three-fourths reflect the low income of their
racial and ethnic minorities and are classified as Black, Hispanic, or
Native American high-poverty counties. In these counties, either a
majority of the poor are Black, Hispanic, or Native American, or it is
only the high incidence of poverty among these minority groups that
brings the county's overall rate above 20 percent. Of the remaining
fourth of high-poverty counties, most (91 counties) are located in the
Southern Highlands of eastern Kentucky, West Virginia, and parts of
Missouri and Oklahoma. In these areas, the poor are predominantly non-
Hispanic Whites.'' \8\
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\7\ For a list of persistent poverty counties used by the CDFI
Fund, see https://www.cdfifund.gov/what_we_do/persistentpoverty.asp.
\8\ See https://www.ers.usda.gov/Briefing/incomepovertywelfare/povertygeography.htm.
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b. Market failure. Rural and urban Low-Income, very Low-Income, and
persistent poverty areas are underserved by mainstream financial
institutions and lack access to investment, capital, and credit. Low
lending rates in these communities create an information deficit for
assessing risk for individual households and neighborhoods in mortgage,
business, and consumer credit markets, and contribute to higher
transaction costs. Furthermore, credit rationing can affect both Low-
Income communities and Certified CDFIs that serve this market niche.
Market failures in the provision of financial services to Low-
Income areas have been well-documented in the academic literature (see
Akerlof, Stieglitz, Klausner, Richardson, Mills and Lubuele).\9\ One
market imperfection is the inherently asymmetric information between a
lender and a borrower. Klausner notes that ``borrowers often know more
about their own risk of default than do lenders. [* * *] When a bank
makes a loan it does so based on information regarding the default risk
of the borrower.'' \10\
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\9\ (A) Akerlof, George A. 1970. ``The Market for Lemons:
Quality Uncertainty and the Market Mechanism.'' The Quarterly
Journal of Economics. 84 (3): 488-500. Akerlof argues that
underdeveloped areas, such as Low-Income and persistent poverty
areas, may remain undeveloped due to the lack of information (such
as the lack of credit scores for households operating in the
informal economy) and the high costs of obtaining accurate
information on these credit risks. According to Akerlof, ``Credit
markets in underdeveloped areas often strongly reflect the operation
of the Lemons Principle.'' In the Lemons Principle, ``bad cars drive
out the good because they sell at the same prices as the good
cars.'' In other words, the perception of average higher risk in
Low-Income Areas may prevent deserving borrowers from accessing
credit and capital from mainstream lenders. However, non-traditional
lenders such as CDFIs are willing to conduct individual underwriting
and are able to enter these markets.
(B) Stiglitz, Joseph E., and Andrew Weiss. 1980. Credit
rationing in markets with imperfect information. Princeton, N.J.:
Econometric Research Program, Princeton University.
(C) Klausner, Michael, ``Market failure and the Community
Reinvestment Act: A market-oriented alternative to the Community
Reinvestment Act.'' University of Pennsylvania Law Review, Vol. 143,
No. 5 (May 1995) pp. 1561-1593.
(D) Richardson, Christopher, ``The Community Reinvestment Act
and the economics of regulatory policy.'' Fordham Urban Law Journal,
Vol. 29, Issue 4, 2001, Article 11. Richardson argues that ``low
levels of lending in low- and moderate-income (LMI) areas result
from the inability of rational lending decisions made by profit-
maximizing lenders to achieve a socially optimal flow of credit to
LMI areas. The market failure occurs because the marginal cost of a
single lender acquiring the information necessary to adequately
assess risk and identify profitable lending opportunities in LMI
areas outweighs the potential marginal benefit the lender can expect
to accrue. In the extreme case, if no single lender will rationally
decide to lend in the area, and no loans will be made'' (p. 1614).
(E) Mills, E.S. and L.S. Lubuele. 1994. ``Performance of
residential mortgages in low-income and moderate-income
neighborhoods.'' Journal of Real Estate Finance and Economics 9(3):
245-260.
\10\ Klausner, Michael, ``A tradable obligation approach to the
Community Reinvestment Act'' in Chakrabarti, Prabal. 2009.
Revisiting the CRA: perspectives on the future of the Community
Reinvestment Act. Boston, Mass: Federal Reserve Bank of Boston.
https://www.frbsf.org/publications/community/cra/revisiting_cra.pdf.
---------------------------------------------------------------------------
Both targeted and mainstream financial lending programs depend on
credit scores to assess risk to provide financial services to their
customers. However, credit scores are often limited in Low-Income
communities due to the low level of lending by mainstream financial
institutions in these communities and the resulting lack of information
on the risk of default for these loan products. In addition, Low-Income
households may operate in the informal economy and may not have credit
score information.
Credit rationing is likely to occur in Low-Income Areas because
generating individual credit risk scores would be too costly for
lenders. Klausner and Richardson note that because banks seek to
maximize their profit, they [and other financial institutions] may be
averse to lending to Low-Income Areas due to the low value of financial
transactions and the lack of credit score information to assess the
riskiness of loans.
[[Page 8305]]
4. Solutions to the Problem.
Through the CDFI Bond Guarantee Program, Certified CDFIs will
demonstrate the ability to successfully deploy conventional long-term
debt, with maturity dates, payment schedules, conditions, covenants,
and reporting requirements similar to those required and provided by
capital markets. The CDFI Bond Guarantee Program will require
standardized data collection and portfolio monitoring, develop a
mechanism for accurately assessing Certified CDFI credit risk, and
provide capital markets with a track record on which to base future
lending and investment. Moreover, the CDFI Bond Guarantee Program,
because of the maximum 30 year maturity, will allow Certified CDFIs to
offer a higher volume of longer term products to their borrowers as
well as manage their interest rate and duration risk because of
improved asset/liability matching. This will further close the gap in
the provision of investments in community facilities, business lending,
and financial services to rural and Low-Income residents and
businesses, addressing distributional issues in the provision of
financial services.
a. Certified CDFIs as potential solution to underserved markets and
market failure. A potential solution to distributional issues in the
provision of financial services and market failure is lending by
financial institutions such as Certified CDFIs. However, due to their
customer base (Low-Income residents and small businesses and nonprofits
serving Low-Income communities), the credit rationing that limits
access to capital for those customers also limits the ability of
Certified CDFIs to secure affordable long-term capital. Moreover, there
is no standardized data on the universe of Certified CDFIs, especially
unregulated loan funds that do not have award reporting history. The
CDFI Bond Guarantee Program would provide access to a maximum of $2
billion in 30-year long-term capital to address the distributional
effects and market failure faced by Low-Income residents and
communities as well as the inability of Certified CDFIs to secure long-
term capital to support their lending and investment efforts.
b. Lowering the transaction costs of lending to Low-Income Areas.
Transaction costs for the provision of financial services in Low-Income
Areas are often higher because many Low-Income households have no
credit score data that can be used to standardize and lower the cost of
the underwriting process. In part, this is due to the fact that many
Low-Income households do not use traditional financial institutions for
banking needs, relying on fringe banking services (e.g., check cashers,
payday lenders, etc.) to conduct financial transactions, thereby
limiting available credit histories and credit score data. The CDFI
Fund estimates that, based on credit score data at the census tract
level, a total of 27 percent of very Low-Income households are missing
credit FICO scores, compared to eight percent for higher-income areas
(see Table 2 below). These figures may underestimate the number of
households without credit scores because they are based on a sample of
households that provided data, adjusted for the population.
Table 2--Credit Score Information
------------------------------------------------------------------------
Percent
Median family income as a percent of area Population missing
income by census tract share in credit
sample % scores %
------------------------------------------------------------------------
a. <50%....................................... 5.99 27
b. 50%<80%.................................... 26.83 18
c. 80%<120%................................... 46.99 12
d. 120%<200%.................................. 18.40 9
e. >200%...................................... 1.79 8
-------------------------
Grand Total............................... 100.00 14
------------------------------------------------------------------------
Source: analysis by the CDFI Fund using Census Bureau 2000 Summary File
1 demographic data and FICO scores by census tract.
Another factor inhibiting credit provisioning is the lower
profitability associated with lower-value loans. This, combined with
expensive underwriting, make the provision of loans and services to
Low-Income populations unprofitable for mainstream financial
institutions. According to the Carsey Institute ``[t]hese transactions
costs can be high for CDFIs because CDFIs market, underwrite, and
originate smaller loans, and provide more intensive services. As a cost
driver for CDFI Loan Funds, operating expense [as a result of high
transactions costs to collect information on Low-Income communities and
to underwrite smaller value loans] is by far the largest component of
an organization's expenses, dwarfing both cost of capital and loan loss
expense.'' \11\
---------------------------------------------------------------------------
\11\ Michael Swack, Jack Northrup, and Eric Hangen. CDFI
Industry Analysis. Spring 2012. Carsey Institute, University of New
Hampshire, Durham, New Hampshire, p. 9. Available at https://www.cdfifund.gov/docs/CBI/2012/Carsey%20Report%20PR%20042512.pdf.
---------------------------------------------------------------------------
If the $200 million to $2 billion range is used to estimate the
minimum and maximum impact range for the CDFI Bond Guarantee program,
using the average loan size of $75,000 for CDFIs, a total of 2,667
loans to 26,670 loans may be issued. A share of these loans--
potentially over half--will involve detailed and costly underwriting
information at the household and firm level for loan recipients that
otherwise would not receive funding. A share of these loans will
include households and firms that do not have credit available
elsewhere from mainstream financial institutions for long-term
mortgages, community facilities such as charter schools, small business
and microloans, and financial banking services. As a result of lending
by participating Certified CDFIs, the Certified CDFIs will generate new
credit score data from the loans to such consumers, which in turn will
provide new credit information on these products and market segments,
which should mitigate the risk associated with a lack of credit data on
Low-Income and rural communities and borrowers. This information can
lower transaction costs and encourage increased participation of
traditional financial institutions in underserved areas, thereby
attracting additional capital from the private sector.\12\
---------------------------------------------------------------------------
\12\ See: ``Collaborators or Competitors? Examining the
Relationship Between CDFIs and Mainstream Banks in Lending to Small
Businesses in Underserved Markets'' by Geoff Smith, Sean Zielenbach,
Jennifer Newon and Sarah Duda, The Woodstock Institute, published by
the CDFI Fund, 2009 https://www.cdfifund.gov/impact_we_make/research/community-economic-development.
---------------------------------------------------------------------------
c. Providing long-term debt and leverage. According to the Carsey
Institute, ``[t]he availability of long-term debt and equity capital
for CDFIs, particularly loan funds, is one of the major structural
issues facing the industry. [* * *] The lack of long-term debt
financing forces CDFIs to [save cash] pushing down leverage and giving
the appearance that many underleveraged CDFIs are not lending as much
as they could, thus neglecting demand among its targeted consumers.''
\13\ The analysis by the Carsey Institute noted that Certified CDFIs
have access to short-term capital and cannot access longer-term
capital. Lenders and investors to Certified CDFIs typically provide
Certified CDFIs with capital that has maturities of ten years or less.
As a result, Certified CDFIs endure asset liability mismatches when
they offer longer term lending products (i.e., mortgages) to their
target borrowers.
---------------------------------------------------------------------------
\13\ Michael Swack, Jack Northrup, and Eric Hangen. CDFI
Industry Analysis, Spring 2012. Carsey Institute, University of New
Hampshire, Durham, New Hampshire, p. 15.
---------------------------------------------------------------------------
The analysis by the Carsey Institute also found that Certified CDFI
loan funds are generally not well leveraged, possibly reflecting the
cost of debt available to them. According to the
[[Page 8306]]
analysis, ``[p]articularly among loan funds, a large number of CDFIs
have very little leverage (i.e., they fund themselves mainly through
net assets, not debt). The median CDFI loan fund in 2009 was leveraged
at just $1.10 in liabilities for every $1 in net assets. About eight
percent of loan funds had no liabilities whatsoever. Banks and credit
unions are typically leveraged at a rate of 10:1 or more.'' \14\ The
CDFI Bond Guarantee Program, because of the maximum 30 year maturity,
will allow Certified CDFIs to offer a higher volume of longer term
products to their borrowers as well as manage their interest rate and
duration risk because of improved asset/liability matching. This will
further close the gap in the provision of services to Low-Income
residents and businesses.
---------------------------------------------------------------------------
\14\ Michael Swack, Jack Northrup, and Eric Hangen. CDFI
Industry Analysis, Spring 2012. Carsey Institute, University of New
Hampshire, Durham, New Hampshire, p. 14.
---------------------------------------------------------------------------
Finally, the Carsey analysis indicates that the average term for
credit provided to CDFIs is rarely above 15 years. When appropriately
compared based on term, the cost of funds under the CDFI Bond Guarantee
Program is significantly lower than what is currently available in the
market. The Carsey analysis notes that CDFIs typically borrow on a
secured basis at more than 100 basis points above the London Interbank
Offered Rate (LIBOR), and that this is for shorter terms than
contemplated under the CDFI Bond Guarantee Program.
5. Baseline
Currently, the CDFI Fund administers six grant and tax allocation
programs:
Table 3--CDFI Fund Award Programs
----------------------------------------------------------------------------------------------------------------
Total amount
awarded/number of Highest award
Program Type/Status Purpose awardees last amount
funding round
----------------------------------------------------------------------------------------------------------------
CDFI Program................... Grant/Annual Provides financial $149 million/144 $1.4 million.
Appropriations. assistance awards to awardees.
institutions that are
certified as CDFIs,
and technical
assistance grants to
Certified CDFIs and
entities that will
become certified as
CDFIs within three
years.
Note: The CDFI Fund
may give a financial
assistance award in
the form of a loan if
the CDFI provides a
loan as its matching
fund. Direct loans
are dictated by the
term and conditions
of the loan submitted
as matching funds.
Native Initiatives............. Grant/Annual Assists entities in $11.5 million/33 $750,000.
Appropriations. overcoming barriers awardees.
that prevent access
to credit, capital,
and financial
services in Native
American, Alaskan
Native, and Native
Hawaiian communities
(Native Communities).
The Native
Initiatives' central
component is the
Native American CDFI
Assistance (NACA)
Program, which
increases the number
and capacity of
existing or new CDFIs
serving Native
Communities.
Bank Enterprise Award Program.. Grant/Annual Provides grants to $18 million *.... $500,000 *.
Appropriations. FDIC-insured banks
for increasing their
investment in Low-
Income communities
and/or in CDFIs.
New Markets Tax Credit Program. Non-cash Tax Provides tax credit $3.5 billion in n/a.
Credit Authority/ allocation authority annual authority.
Annual Renewal. to certified
Community Development
Entities (CDEs),
enabling investors to
claim tax credits
against their Federal
income taxes. The
CDEs in turn use the
capital raised to
make investments in
Low-Income
communities.
Capital Magnet Fund............ Grant/FY 2010 Provides grants for $80 million/23 $6 million.
only. CDFIs and other non- awardees.
profits to finance
the development,
rehabilitation, and
purchase of
affordable housing
for Low-Income people.
Financial Education and Grant/FY 2009 and Provides financial $4.1 million/4 $3.15 million/
Counseling Pilot Program. FY 2010 only. assistance awards to awardees **. $400,000 **.
enable Certified
CDFIs and other
eligible
organizations to
deliver a variety of
financial education
and counseling
services to
prospective
homebuyers.
----------------------------------------------------------------------------------------------------------------
* Based on most recent funding round.
** In FY 2010, the CDFI Fund was appropriated $4.1 million for the FEC Pilot Program, of which $3.1 million was
specifically appropriated for an award to an organization located in the State of Hawaii and $1 million was
appropriated in FY 2010 for the FEC Pilot Program.
a. Size of loans under the CDFI Bond Guarantee Program greater than
current CDFI Fund programs. While valuable, CDFI Fund programs provide
limited, short-term capital for CDFIs. The increased competitiveness,
small award size, and annual uncertainty in the total amounts to be
awarded limit CDFIs' ability to plan effectively for long-term project
and capital needs. For the baseline analysis without the CDFI Bond
Guarantee Program, the CDFI Fund assumes that the above-mentioned
programs would be appropriated at historical levels and estimates that
[[Page 8307]]
Certified CDFIs would borrow and lend at current levels.
b. CDFI lending at current levels. In FY 2011, CDFI Fund awardees
reported originating 16,313 loans or investments totaling $1.2 billion,
based on their portfolio of activities in 2010. This includes $357.3
million for 5,010 home improvement and purchase loans, $296.8 million
for 5,233 business and microenterprise loans, and $289.2 million for
679 residential real estate transactions. These data on the amount and
number of loans or investments originated provide baselines for
benchmarking and targeting program performance. Under the CDFI Program,
real estate loans financed 17,778 affordable housing units, including
15,979 rental units and 1,799 owner units. CDFIs also provided
extensive financial products and services to unbanked and underserved
individuals by opening 6,537 new bank accounts and maintaining 7,007
Individual Development Accounts totaling $9,131,382 in savings. CDFIs
reported providing financial literacy counseling and other training
opportunities to 177,252 individuals. Finally, loans and investments
originated by CDFIs over the last three years were located in more than
22 percent of eligible census tracts, exceeding the target of 10
percent. Average Certified CDFI awardee loan sizes for all loan types
from 2003 to 2010 are $62,000, and the average term is 5.9 years.
Average commercial real estate loan sizes are $694,000 with an average
term of 6.4 years.
c. What would occur in the absence of the CDFI Bond Guarantee
Program. The absence of the CDFI Bond Guarantee Program limits the
ability of Certified CDFIs to provide long-term affordable loans and
investments to Low-Income borrowers, individuals, and small businesses.
Financial innovation and development of products specifically tailored
to Low-Income communities may be curtailed and the potential for
Certified CDFIs entering private capital markets would also be limited.
The CDFI Bond Guarantee Program would result in a share of lending that
would not otherwise occur in Low-Income areas, as well as leveraging
and relending which could result in potential economic benefits. The
CDFI Fund's award and tax credit programs would remain the primary
source of Federally funded programs for Certified CDFIs.
6. Time Horizon for the Analysis
The CDFI Bond Guarantee Program is authorized to guarantee up to $1
billion in Bonds issued each year through FY 2014, and the maximum
maturity of the Bonds cannot exceed 30 years. Therefore, the
appropriate time horizon for analysis is FY 2013-FY 2044.
7. Alternative Approaches Considered
To address the distributional gaps and market failure identified
above, the CDFI Bond Guarantee Program structure should allow for
participation by Eligible CDFIs that demonstrate the ability to deploy
Bond Loan proceeds within the guidelines and credit subsidy constraints
as written in the Act. The CDFI Fund has chosen to structure the
program pursuant to alternatives c and d described below.
Regulatory alternatives for the CDFI Bond Guarantee Program
considered are: (a) Requiring minimum participation size to equal $100
million per institution per Guarantee; (b) requiring a pool of CDFIs
with a minimum participation size equal to $500,000 per institution in
a $100 million Guarantee; (c) requiring a pool of CDFIs with a minimum
participation size of $10 million per institution in a $100 million
minimum Guarantee; or (d) requiring general recourse obligations by
CDFI Borrowers.
a. Minimum Bond Loan size of $100 million. This alternative would
only allow a maximum of ten Eligible CDFIs to participate in the CDFI
Bond Guarantee Program each year, limiting the ability of a significant
percentage of Certified CDFIs from accessing the Bond Proceeds and
lending them to Low-Income households and businesses in Low-Income
areas. Given the requirements of a zero-subsidy program and the debt
service burden of a $100 million liability, it is likely that only ten
or fewer Certified CDFIs would be able to participate based upon
estimates of the additional debt service burden imposed by a $100
million obligation. The reduced number of applicants would lead to a
more streamlined approval and implementation process (e.g., faster
processing, less variation in documentation) resulting in lower bond
issuance costs for the Qualified Issuers and Eligible CDFIs in the
obligation. Cumulative administrative costs for Eligible CDFIs would be
lower legal fees, and the absence of Secondary Borrower applications
that would require underwriting and due diligence. These cost
reductions would be achieved in part by reduced reliance on outside
counsel and consultants by applicants.
However, the benefits of the CDFI Bond Guarantee Program would also
be reduced due to the concentration of benefits in a handful of
Certified CDFIs. It is less likely that the funds would be disbursed
among various market segments categorized by geography, industry
sector, ethnicity, and other socioeconomic factors. This alternative is
less likely to address the credit rationing and distribution problems
and therefore yield lower social benefits. The benefit of risk
diversification would also be lessened, and could impose a greater
overall cost in terms of interest rates to Secondary Borrowers.
b. Minimum Bond Loan size of $500,000. Maximizing the number of
organizations that can participate as an Eligible CDFI by setting a low
Bond Loan limit does not result in the greatest net benefits due to the
corresponding increase in administrative costs. The CDFI Fund could set
the minimum Bond Loan size to $500,000. This number is representative
of the approximate average size of loans disbursed through the CDFI
Program.\15\ Under this scenario, up to 200 Eligible CDFIs could
participate in a minimum $100 million issuance. There is a greater
likelihood of the benefits being distributed among underserved market
segments as measured by geography, industry sector, ethnicity, and
other socioeconomic factors. Long-term capital would be provided to
many of the smaller institutions certified by the CDFI Fund, and as a
result these institutions would most likely be able to reduce asset-
liability mismatches previously described.
---------------------------------------------------------------------------
\15\ Through the CDFI Program, the CDFI Fund has made 157 loans
with an average principal of approximately $512,000 from 1996-2008.
---------------------------------------------------------------------------
Increasing the number of possible Eligible CDFIs in a single
Guarantee pool would:
(1) Decrease the likelihood of issuing the maximum number of Bonds
in a fiscal year due to the difficulty in grouping large numbers of
Certified CDFIs into homogeneous credit qualities for credit scoring
approval by the Office of Management and Budget (OMB); and
(2) for Eligible CDFIs, significantly increase costs associated
with loan documentation, legal counsel, underwriting and due diligence,
as well as ongoing compliance and loan monitoring.
The 10 basis point Agency Administrative Fee authorized by the Act
would equal only $500 per institution on an annual basis based on a
minimum participation of $500,000. This annual fee declines based upon
outstanding principal balance. Further, Eligible CDFIs participating in
the program would each incur fees associated with their own legal
counsel and possibly consulting services in addition to the 10 basis
point Agency Administration Fee. Although scale
[[Page 8308]]
effects exist, there is a minimum fixed cost of issuance associated
with such services that each individual Eligible CDFI would incur, thus
raising the aggregate total costs of issuance for Eligible CDFIs.
Therefore, this alternative is less likely to address the credit
rationing and distribution problems, and therefore does not maximize
social benefits.
c. Minimum participation size of $10 million. The CDFI Fund has
chosen to require a minimum Bond Loan size of $10 million so long as
the aggregate principal amount is at least a $100 million minimum Bond
Issue. This has been determined as the best alternative that maximizes
net benefits. The proposed structure of the CDFI Bond Guarantee Program
would allow two-tier borrowing: Eligible CDFIs would borrow at the $10
million minimum and then lend to Secondary Borrowers (in some cases
also CDFIs) in increments below the $10 million minimum. Given this
proposed structure, up to 100 Eligible CDFIs could theoretically
participate in a fiscal year; however, several dozen Eligible CDFIs may
choose to apply for larger Bond Loan amounts.
This program is not meant to be a reproduction of the CDFI Program,
which provides hundreds of Certified CDFIs awards between $100,000 and
$1,000,000 each year in an effort to support the capacity of Certified
CDFIs to build direct equity in support of their capital needs. The
minimum participation of $10 million targets Certified CDFIs that have
the financial and operating capacity to quickly deploy capital to Low-
Income communities as well as lend Secondary Loans of smaller amounts
to Certified CDFIs that are unable to absorb large amounts of debt on
their balance sheets. These Certified CDFIs will also be required to
demonstrate the capacity to track and measure performance and impact of
the Bond Loan proceeds, which will build the data needed to help
counter the distributional issues noted in the earlier sections.
By demonstrating that Low-Income households and businesses are able
to borrow and repay loans of greater amounts and tenor, the
transactional costs of lending to such borrowers will decrease over
time and the ability of the participating Eligible CDFIs to relend and
leverage those funds will increase as the loans are repaid. This
regulatory alternative is best suited to ameliorating the credit
rationing and distribution problems, and thus maximizes net social
benefits.
d. On-balance sheet, general recourse obligations. The CDFI Fund
has chosen to require general recourse obligations that will be on-
balance sheet liabilities of Eligible CDFIs. Eligible CDFIs will be
underwritten for their financial strength, management capacity, and
general probability of default based upon various factors.
Additionally, the Eligible CDFIs are required to lend funds subject to
Secondary Loan Requirements that satisfy a certain minimum recovery
rate in the case of default or temporary financial hardship by an
Eligible CDFI.
The benefits of this approach include a streamlined application
process where the Eligible CDFI is underwritten rather than each
individual asset financed by Bond Loan proceeds. Where necessary, the
Credit Enhancements required to increase an Eligible CDFI's credit
quality are more easily quantified and enforceable. Additionally, more
Eligible CDFIs may be able to participate by achieving the zero subsidy
level required of the program.
Additional costs may be incurred in order to participate in the
program, including the cost of acquiring Credit Enhancements and
documenting the Eligible CDFI's financial strength, management
capacity, and other characteristics indicative of capacity to reduce
the probability of default. Costs such as legal and consultant fees may
be reduced because each individual asset financed by Bond Loan proceeds
does not need to be underwritten.
Although difficult to estimate, it is likely that this regulatory
alternative is both the net most beneficial and least costly
alternative. This alternative also allows the CDFI industry to
demonstrate its ability to manage capital, mitigate risk, and leverage
funds long-term in a way not currently captured or adequately assessed.
This alternative is best suited to ameliorating the credit rationing
and distribution issues identified.
Therefore, the CDFI Fund has chosen to pursue regulatory
alternatives (c) and (d), above, in the design and implementation of
the CDFI Bond Guarantee Program.
8. Economic Effects of Selected Approach.
Per the Act, the CDFI Bond Guarantee Program will expire at the end
of FY 2014; therefore, in FY 2013 and FY 2014 the Secretary of the
Treasury can provide guarantees for Bond Issues with maturities up to
30 years. The CDFI Bond Guarantee Program would provide a maximum of $2
billion in long-term capital to fill the gap in mortgage lending,
consumer lending, and business lending. A summary of the projected
transfers and costs under two scenarios is provided in Table 3: One
Bond Issue per fiscal year ($200 million) and 10 Bond Issues per fiscal
year ($2 billion).
Transfers and costs have been discounted using a net present value
methodology over a 30-year period using a three percent discount rate
that reflects the cost of capital and seven percent discount value for
benefits recommended by OMB in its guidance for Regulatory Impact
Analyses. Table 3 describes the transfers and costs discounted at both
the three percent and seven percent levels.
Table 4--Potential Costs and Transfers
----------------------------------------------------------------------------------------------------------------
Discounting by 3% Discounting by 7%
--------------------------------------------------------------------------------
$200 million $2 billion $200 million $2 billion
issuance issuance issuance issuance
----------------------------------------------------------------------------------------------------------------
COSTS
----------------------------------------------------------------------------------------------------------------
Government Costs............... $19.9 million...... $28.8 million..... $13.4 million..... $18.6 million.
Eligible CDFIs................. $4.6 million....... $45.7 million..... $4.2 million...... $41.9 million.
----------------------------------------------------------------------------------------------------------------
Low-Income communities......... n/a................ n/a............... n/a............... n/a.
----------------------------------------------------------------------------------------------------------------
TRANSFERS
----------------------------------------------------------------------------------------------------------------
Low-Income communities......... $200 million....... $2 billion........ $200 million...... $2 billion.
----------------------------------------------------------------------------------------------------------------
[[Page 8309]]
a. Government costs. The estimate of the administrative costs to
the CDFI Fund (Government Costs) are based on current administrative
costs of implementation and the FY 2014 budget request for additional
Full-Time Employees (FTEs), as well as the staff required to administer
and manage the program for the remaining 30 years of the program.
Government costs may fluctuate depending on the size of the guaranteed
Bond Issues, The costs do not reflect inflation factors or the use of
non-governmental contractors to carry out administrative functions
after FY 2013 and FY 2014.
b. Eligible CDFI costs. The estimated administrative costs to
Eligible CDFIs for the CDFI Bond Guarantee Program are based on: (1)
The future costs of 10 basis points in Agency Administrative Fees of
the amount of the unpaid principal of the Bonds, up to the maximum
maturity of 30 years, for Bonds issued through September 30, 2014, the
expiration of the program, and these costs discounted back to the
present value; and (2) the Bond Issue costs through September 30, 2014,
the expiration of the program, and these costs discounted back to the
present value. The Bond Issuance Fees are estimated to be one percent
of principle value of the Bond Issue.
9. Non-Quantified and Non-Monetized Benefits and Costs
Non-quantified benefits include the reduction of information
asymmetry between Eligible CDFI and mainstream financial institutions
cited in section 3(b), above. Regulated banks, thrifts, and credit
unions are subject to intense and standard reporting requirements by
their respective regulators. However, non-regulated Certified CDFIs
frequently utilize disparate accounting methodologies and report
certain data points, such as borrower defaults and delinquencies, in
ways that are difficult to compare across organizations. Non-profit
Certified CDFIs are yet more difficult to compare due to the variety of
reporting options available to non-profit institutions under generally
accepted accounting principles (GAAP). By addressing the information
asymmetry challenge, Eligible CDFIs in the CDFI Bond Guarantee Program
may be able to provide sufficient information to traditional capital
market participants to access private sources of long-term capital.
This non-quantified benefit would further result in the amelioration of
credit rationing, thereby increasing the amount of credit information
available for traditional financial institutions.
Ancillary non-quantified benefits include additional information
that the CDFI Fund will be able to develop using standardized data
collection within the CDFI industry, creating consistent reporting
within other programs, such as the CDFI Program, and within other
related agencies and regulators that interact with Certified CDFIs. In
addition, the CDFI industry will be able to develop innovative
financial products to meet the long-term needs of their borrowers, thus
increasing the level of direct investment from the Bond Proceeds and
leveraging additional investment from the private sector. The program
may also result in standardized credit rating information on the Low-
Income communities served by Certified CDFIs. This would result in
further reductions of informational asymmetry to the benefit of both
individual borrowers and the CDFIs which serve them.
Countervailing non-monetized costs include the increased reporting
and monitoring requirements for participants in the CDFI Bond Guarantee
Program and administrative burden posed by data collection and
verification. Depending upon the structure and composition of Eligible
CDFIs that may pool together for a minimum $100 million Bond Issue,
non-monetized costs may vary greatly based on necessary legal counsel,
labor hours of staff, travel requirements, and other overhead costs.
CDFIs that are awardees of current CDFI Fund programs are already
required to provide detailed reporting on an annualized basis. In
compliance with OMB Circular A-129, the CDFI Bond Guarantee Program
will collect all necessary information to manage the portfolio
effectively, and track progress towards policy goals. Therefore, the
non-quantified costs for participants in the CDFI Bond Guarantee
Program would be the incremental burden of providing necessary
reporting for the CDFI Fund to proactively manage portfolio risks and
performance.
10. Uncertainty in Economic Impacts
The impact estimates are very dependent on a nested set of
assumptions that presuppose knowledge of which Certified CDFIs will
participate in the CDFI Bond Guarantee Program, their target markets,
and the characteristics of the typical Certified CDFI lending
portfolio. While the CDFI Fund could estimate average community and
economic impacts based on reporting awardees, the reliability of such
estimates would be misleading; econometric estimates based on awardee
reporting would be inefficient and biased since such estimates would
not necessarily reflect the subgroup of Certified CDFIs that would be
deemed eligible given the asset and underwriting requirements of the
CDFI Bond Guarantee Program.
A firm estimate of the impacts of the CDFI Bond Guarantee Program
is not feasible without understanding the costs of the assistance to
participating CDFIs, which includes the interest rate on the Bond Loans
and the costs of other terms and Credit Enhancements necessary to
result in an estimated zero subsidy cost for the CDFI Bond Guarantee
Program. The CDFI Fund intends to estimate the subsidy cost separately
for each Guarantee, to account more accurately for the differing
characteristics of each facility. Accordingly, the cost of capital to
participating CDFIs will depend on these characteristics, as will the
number of CDFIs that will participate (the take rate by type of
institution) in the CDFI Bond Guarantee Program. Certified CDFI
participation will also be affected by the cost of alternative
financing that may be available.
The Carsey Institute \16\ report indicates that CDFIs typically can
borrow, on a secured basis, on the open market at rates that are
approximately 75-100 basis points above the LIBOR. As of May 22, 2012,
the one-year LIBOR Rate was 1.05 percent,\17\ or 85 basis points above
the 0.20 percent 1-year Treasury Yield Curve Rate.\18\ Although it may
not be appropriate to extrapolate due to other factors which affect
yield spreads as duration increases, Certified CDFIs may face borrowing
costs that are 160-185 basis points above comparable Treasury
securities. It is likely that the yield spread charged on 30-year
maturities, which are not available to Certified CDFIs, would be
significantly higher due to the additional interest-rate risk inherent
to long-term debt issuances. Moreover, it is not possible to anticipate
the amount of relending that CDFIs would engage in over the course of
30 years.
---------------------------------------------------------------------------
\16\ Capital Markets, CDFIs, and Organization Credit Risk, p.
47.
\17\ https://www.bankrate.com/rates/interest-rates/1-year-libor.aspx.
\18\ https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield.
---------------------------------------------------------------------------
Uncertainty in cost estimates results from the variety and
complexity of financial structures that may be presented to the CDFI
Bond Guarantee Program during the application process. Complex legal
structures, Credit Enhancements, and tailored provisions in each
Agreement to Guarantee may result in vastly different administrative
burdens for the Eligible CDFI, as well as
[[Page 8310]]
the CDFI Fund. Depending upon the structure and composition of Eligible
CDFIs that may pool together for a minimum $100 million Bond Issue,
non-monetized costs may vary greatly based on necessary legal counsel,
labor hours of staff, travel requirements, and other overhead costs.
Further, the increased burden of compliance costs by participating
Eligible CDFIs will depend on the degree of sophistication and ability
of each organization's management, staff, and information systems to
process and submit data required throughout the life of the program.
B. Regulatory Flexibility Act
Because no notice of proposed rulemaking is required under the
Administrative Procedure Act (5 U.S.C 553) or any other law, the
Regulatory Flexibility Act does not apply.
C. Paperwork Reduction Act
The collection of information contained in the interim rule will be
separately submitted to the Office of Management and Budget (OMB) in
accordance with the Paperwork Reduction Act of 1995 (PRA) for approval
and issuance of an OMB Control Number. Under the PRA, an agency may not
conduct or sponsor, and an individual is not required to respond to, a
collection of information unless it displays a valid OMB control
number. The CDFI Fund will publish a PRA Notice in the Federal Register
to solicit comments on the information collections. In the PRA Notice
published in the Federal Register, the CDFI Fund will specifically
invite comments on: (a) Whether the collection of information is
necessary for the proper performance of the functions of the CDFI Fund,
including whether the information shall have practical utility; (b) the
accuracy of the CDFI Fund's estimate of the burden of the collection of
information; (c) ways to enhance the quality, utility, and clarity of
the information to be collected; (d) ways to minimize the burden of the
collection of information on respondents, including through the use of
technology; and (e) estimates of capital or start-up costs and costs of
operation, maintenance, and purchase of services to provide
information.
The CDFI Fund will solicit public comment on each of these issues
for the following sections of this document that contain information
collection (ICs):
1. ICs Regarding the Application Process (12 CFR 1808.401). This
section provides the requirements for the Qualified Issuer Application
and Guarantee Application. For the Qualified Issuer Application, the
estimated burden for Qualified Issuer applicants is 240 hours. The
estimated number of Qualified Issuer respondents is 10 per year. The
estimated total annual burden regarding the Qualified Issuer
Application process is 2,400 hours. For the Guarantee Application, the
estimated burden for Qualified Issuer applicants is 240 hours. The
estimated burden for Eligible CDFI applicants is 50 hours. The
estimated number of Qualified Issuer respondents is 10 per year. The
estimated number of Eligible CDFI respondents is 100 per year. The
estimated total annual burden regarding the Guarantee Application
process is 7,400 hours. These estimates may be revised in the final PRA
Notices published in the Federal Register.
2. ICs Regarding Reporting Requirements (12 CFR 1808.619). This
section provides the reporting requirements for the Qualified Issuer
and Eligible CDFI participants. The estimated burden for a Qualified
Issuer participant is 80 hours, consisting of monthly, quarterly, and
annual reporting. The estimated burden for Eligible CDFI participants
is 86 hours, consisting of monthly, quarterly, and annual reporting.
The estimated number of Qualified Issuer participants is 5 per year.
The estimated number of Eligible CDFI participants is 50 per year. The
estimated total annual burden regarding the reporting requirements is
4,700 hours. These estimates may be revised in the final PRA Notices
published in the Federal Register.
Comments concerning suggestions for reducing the burden of
collections of information should be directed by mail to the Deputy
Director, CDFI Fund, Department of the Treasury, 1500 Pennsylvania
Avenue NW, Washington, DC 20220, and to the Office of Management and
Budget, Attention: Desk Officer for Department of the Treasury, Office
of Information and Regulatory Affairs, Washington, DC 20503.
D. National Environmental Policy Act
The interim rule has been reviewed in accordance with 12 CFR part
1815, the CDFI Fund's environmental quality regulations published
pursuant to the National Environmental Protection Act of 1969 (NEPA),
which require that the CDFI Fund adequately consider the cumulative
impact proposed activities have upon the human environment. It is the
determination of the CDFI Fund that the interim rule does not
constitute a major Federal action significantly affecting the quality
of the human environment and, in accordance with NEPA and the CDFI
Fund's environmental quality regulations at 12 CFR part 1815, neither
an Environmental Assessment nor an Environmental Impact Statement is
required.
E. Administrative Procedure Act
Pursuant to authority at 5 U.S.C. 553(a)(2), the interim rule
related to loans is exempt from the rulemaking requirements of the
Administrative Procedure Act, 5 U.S.C. 551 et seq., including the
requirement to provide prior notice and an opportunity for public
comment.
List of Subjects in 12 CFR Part 1808
Community development, Guaranteed bonds, Guaranteed loans, Loan
programs--housing and community development, Reporting and record
keeping requirements.
For the reasons set forth in the preamble, 12 CFR chapter XVIII is
amended by adding part 1808 to read as follows:
PART 1808--COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS BOND
GUARANTEE PROGRAM
Subpart A--General Provisions
Sec.
1808.100 Purpose.
1808.101 Summary.
1808.102 Definitions.
1808.103 Participant not instrumentality.
1808.104 Deviations.
1808.105 Relationship to other CDFI Fund programs.
1808.106 OMB control number.
Subpart B--Eligibility
1808.200 Qualified Issuers.
1808.201 Designated Bonding Authority.
1808.202 Eligible CDFIs.
Subpart C--Interest Rates; Terms and Conditions of Bonds, Bond Loans,
and Secondary Loans
1808.300 Interest rates.
1808.301 Eligible uses of Bond Proceeds.
1808.302 Bond terms and conditions.
1808.303 Risk-Share Pool.
1808.304 Eligible uses of Bond Loan proceeds.
1808.305 Bond Loan terms and conditions.
1808.306 Conditions precedent to Bond and Bond Loan.
1808.307 Secondary Loan Eligible Purposes; Terms and conditions.
1808.308 Relending Fund; Relending Account.
1808.309 Restrictions on uses of Bond Proceeds and Bond Loan
proceeds.
Subpart D--Applications for Guarantee and Qualified Issuer
1808.400 Notice of Guarantee Availability.
1808.401 Application requirements.
[[Page 8311]]
Subpart E--Evaluation and Selection
1808.500 Evaluation of Qualified Issuer Applications.
1808.501 Evaluation of Guarantee Applications.
1808.502 Evaluation of Designated Bonding Authority Applications.
1808.503 Consultation with Appropriate Regulatory Agencies.
1808.504 Selection of Qualified Issuers; Approval for Guarantee.
Subpart F--Terms and Conditions of Guarantee
1808.600 Full faith and credit and incontestability of Guarantee.
1808.601 Assignment and transfer of Guarantee.
1808.602 Offer of Guarantee.
1808.603 Issuance of Guarantee.
1808.604 Agreement to Guarantee.
1808.605 Agency Administrative Fee.
1808.606 Program Administrator; Servicer; Master Servicer/Trustee.
1808.607 Representations and warranties of Qualified Issuer with
respect to Guarantee.
1808.608 Representations and warranties of Eligible CDFI with
respect to each Bond Loan.
1808.609 Representations and warranties of Secondary Borrower.
1808.610 Covenants of Qualified Issuer with respect to Guarantee.
1808.611 Covenants of Eligible CDFI with respect to Bond and each
Bond Loan.
1808.612 Specific financial covenants of Eligible CDFI.
1808.613 Negative covenants of Eligible CDFI.
1808.614 Covenants of Secondary Borrower with respect to Secondary
Loan.
1808.615 Negative covenants of Secondary Borrower.
1808.616 Events of default and remedies with respect to Bonds.
1808.617 Events of default and remedies with respect to Bond Loans.
1808.618 Events of default and remedies with respect to Secondary
Loans.
1808.619 Reporting requirements.
1808.620 Investments in Guaranteed Bonds ineligible for Community
Reinvestment Act Purposes.
1808.621 Conflict of interest requirements.
1808.622 Compliance with government requirements.
1808.623 Lobbying restrictions.
1808.624 Criminal provisions.
1808.625 CDFI Fund deemed not to control.
1808.626 Limitation on liability.
1808.627 Fraud, waste and abuse.
Authority: The Small Business Jobs Act of 2010, Pub. L. 111-240,
Sec. Sec. 1134 and 1703; 12 U.S.C. 4713a.
Subpart A--General Provisions
Sec. 1808.100 Purpose.
The purpose of the Community Development Financial Institutions
(CDFI) Bond Guarantee Program is to support CDFI lending by providing
Guarantees for Bonds issued as part of a Bond Issue for Eligible
Community or Economic Development Purposes, as authorized by sections
1134 and 1703 of the Small Business Jobs Act of 2010 (Pub. L. 111-240;
12 U.S.C. 4713a).
Sec. 1808.101 Summary.
This section provides a summary overview of certain key provisions
of the interim rule, the detailed requirements of which are set forth
in subsequent subparts.
(a) Guarantee. Through the CDFI Bond Guarantee Program, the
Guarantor will provide a Guarantee for Bonds issued by Qualified
Issuers as part of a Bond Issue.
(b) Bonds. Pursuant to the Act at 12 U.S.C. 4713a(e), a Bond Issue
shall comprise Bonds having a minimum aggregate principal amount of
$100,000,000 and a maximum aggregate principal amount of
$1,000,000,000. The principal amount of each Bond (or series of Bonds)
shall not be less than $10,000,000. A Bond Rate for each advance of
funds under a Bond will be established by the Bond Purchaser as of the
date of the respective advance, as provided in the Bond.
(c) Bond Loans to Eligible CDFIs. The Qualified Issuer will use
Bond Proceeds to make Bond Loans to Eligible CDFIs for Eligible
Purposes, as those terms are defined in section 1808.102. The CDFI Fund
will evaluate each Eligible CDFI using standard Bond Loan Requirements
to assess their creditworthiness and capacity to receive a Bond Loan.
Each Eligible CDFI may borrow a Bond Loan in an amount that is at least
$10,000,000. The Bond Loan Rate shall be the same as the Bond Rate on
the particular advance of funds under the Bond that funds the Bond
Loan. The aggregate of the principal amounts of the Bond Loans must not
exceed the maximum principal amount of the corresponding Bond Issue.
The Qualified Issuer must execute Bond Loan documents for 100 percent
of the principal amount of each Bond on the Bond Issue Date. Bond Loan
proceeds may not be drawn down from the Qualified Issuer until the
Eligible CDFI has an immediate use for the Bond Loan proceeds. Five
percent, or such other amount that is determined by the CDFI Fund in
its sole discretion, of Bond Loan proceeds may be used by an Eligible
CDFI to capitalize Loan Loss Reserves.
(d) Secondary Loans to Secondary Borrowers. If the Eligible CDFI
uses Bond Loan proceeds to make Secondary Loans, the Eligible CDFI must
execute Secondary Loan documents (in the form of promissory notes) with
Secondary Borrowers as follows:
(1) Not later than 12 months after the Bond Issue Date, Secondary
Loan documents representing at least 50 percent of such Eligible CDFI's
Bond Loan proceeds allocated for Secondary Loans; and
(2) Not later than 24 months after the Bond Issue Date, Secondary
Loan documents representing 100 percent of such Eligible CDFI's Bond
Loan proceeds allocated for Secondary Loans (excluding any amounts used
for payment of Bond Issuance Fees pursuant to section 1808.304(b)).
(e) Terms and conditions. Bonds, Bond Loans and Secondary Loans
shall have terms and conditions as set forth in Subpart F of this
interim rule including at a minimum, that:
(1) Each Bond shall be a nonrecourse obligation of the Qualified
Issuer, payable solely from amounts available pursuant to the Bond
Documents. Each promissory note evidencing a Bond Loan shall be a
general recourse obligation of the Eligible CDFI and secured by a first
lien on collateral. Each Secondary Loan shall be secured by a first
lien on collateral and payable solely from amounts available pursuant
to the Secondary Loan documents;
(2) The maturity date of a Bond shall not be later than 30 years
after the Bond Issue Date. The maturity date of Bond Loans and
Secondary Loans may be earlier than, but may not be later than, the
maturity date of the corresponding Bond;
(3) The Bonds shall be purchased by the Bond Purchaser on terms and
conditions that are satisfactory to the Bond Purchaser, the Guarantor,
and the CDFI Fund (under specific requirements set forth in Sec.
1808.302 and the Bond Documents); and
(4) The Guarantor shall guarantee payments on Bonds issued as part
of a Bond Issue in such forms and on such terms and conditions and
subject to such covenants, representations, warranties and requirements
(including requirements for audits) as set forth in this interim rule
in Subpart F. These requirements may be expanded upon through the
program's Notice of Guarantee Availability, the Bond Documents, and the
Bond Loan documents. The Qualified Issuer shall enter into the
applicable Bond Documents to evidence its acceptance of the terms and
conditions of the Guarantee.
Sec. 1808.102 Definitions.
For purposes of this part, capitalized terms used herein and not
defined elsewhere are defined as follows:
[[Page 8312]]
(a) Act means the Small Business Jobs Act of 2010, Pub. L. 111-240,
sections 1134 and 1703, 12 U.S.C. 4713a;
(b) Affiliate means any entity that Controls, is Controlled by, or
is under common Control with, another entity. Control is defined as:
(1) Ownership, control or power to vote 25 percent or more of the
outstanding shares of any class of Voting Securities (as that term is
defined in 12 CFR 1805.104(mm)) of any legal entity, directly or
indirectly or acting through one or more other persons; or
(2) Control in any manner over the election of a majority of the
directors, trustees, or general partners (or individuals exercising
similar functions) of any legal entity; or
(3) The power to exercise, directly or indirectly, a controlling
influence, as determined by the CDFI Fund, over the management, credit
decisions, investment decisions, or policies of any legal entity;
(c) Agency Administrative Fee means a fee in an amount equal to 10
basis points (0.1 percent) of the amount of the unpaid principal of the
Bond Issue, payable annually to the CDFI Fund by a Qualified Issuer;
(d) Agreement to Guarantee means the written agreement between the
Guarantor and the Qualified Issuer which sets forth the terms and
conditions on which the Guarantor will provide the Guarantee;
(e) Appropriate Federal Banking Agency has the same meaning as in
section 3 of the Federal Deposit Insurance Act, 12 U.S.C. 1813(q), and
includes, with respect to an Insured Credit Union (as such term is
defined in 12 CFR 1805.104(bb)), the National Credit Union
Administration;
(f) Appropriate State Agency means an agency or instrumentality of
a State that regulates and/or insures the member accounts of a State-
Insured Credit Union (as such term is defined in 12 CFR 1805.104(e));
(g) Bond means a security in the form of a draw-down bond or note
issued by the Qualified Issuer, with each advance of funds thereunder
bearing interest at an applicable Bond Rate established by the Bond
Purchaser in accordance with section 1808.300 of this part, and sold to
the Bond Purchaser, the proceeds of which will be used for Eligible
Purposes, and which benefit from a Guarantee;
(h) Bond Documents mean, for each Bond, the respective Bond, Bond
Trust Indenture, Agreement to Guarantee, Bond purchase agreement, and
all other instruments and documentation pertaining to the issuance of
the Bond;
(i) Bond Issuance Fees mean amounts paid by an Eligible CDFI for
reasonable and appropriate expenses, administrative costs, and fees for
services incurred in connection with the issuance of the Bond (but not
including the Agency Administrative Fee) and the making of the Bond
Loan;
(j) Bond Issue means at least $100,000,000, and no more than
$1,000,000,000, in aggregate principal amount of Bonds secured by a
single Guarantee; each Bond (or series of Bonds) in the Bond Issue
being in the minimum principal amount of at least $10,000,000;
(k) Bond Issue Date means the date on which the Bond is deemed to
be issued or originated;
(l) Bond Loan means a loan of Bond Proceeds by a Qualified Issuer
to an Eligible CDFI. A Bond Loan must be in an initial principal amount
that is not less than $10,000,000, and Bond Loan proceeds must be used
for Eligible Purposes;
(m) Bond Loan Payment Default Rate means, in the event of a Bond
Loan payment default, the applicable interest rate on any overdue
amount from its due date to the date of actual payment and shall be
calculated in the same manner as a late charge rate is calculated in
the underlying Bond;
(n) Bond Loan Rate means the rate of interest for each advance of
funds under a Bond Loan, which shall be the same as the Bond Rate;
(o) Bond Loan Requirements means the credit criteria, established
by the CDFI Fund, for assessing the creditworthiness and capacity of
each Eligible CDFI applicant to receive a Bond Loan;
(p) Bond Proceeds means the funds that are advanced by the Bond
Purchaser to the Qualified Issuer under a Bond;
(q) Bond Purchaser (or Bondholder) means the Federal Financing
Bank, the body corporate and instrumentality of the Federal Government
created by the Federal Financing Bank Act of 1973 (12 U.S.C. 2281 et
seq.);
(r) Bond Rate means the rate of interest for each advance of funds
under a Bond;
(s) Bond Trust Indenture means the agreement between the Qualified
Issuer and the Master Servicer/Trustee that sets forth the rights,
duties, responsibilities and remedies of the Qualified Issuer and
Master Servicer/Trustee with respect to the Bonds, to include
responsibilities regarding the management of the collateral, the
management of the funds and accounts, the repayment and redemption of
the Bonds, and the circumstances and processes surrounding any default;
(t) Capital Distribution Plan means the component of the Guarantee
Application that demonstrates the Qualified Issuer's comprehensive plan
for lending, disbursing, servicing, and monitoring each Bond Loan and
that meets the requirements of Sec. 1808.401 of this interim rule and
such other requirements as may be designated in the applicable Notice
of Guarantee Availability. The Capital Distribution Plan includes,
among other components (specified in Sec. 1808.401 of this interim
rule), a Statement of Proposed Sources and Uses of Funds, and shall
include one or more Secondary Capital Distribution Plans;
(u) CDFI Bond Guarantee Program (or Program) means the program of
providing Guarantees for Bonds issued as part of a Bond Issue by
Qualified Issuers to make Bond Loans to Eligible CDFIs for Eligible
Purposes, as authorized by subsections 1134 and 1703 of the Act (12
U.S.C. 4713a), and implemented under this part;
(v) Certified Community Development Financial Institution (or
Certified CDFI) means a financing entity that has a primary mission of
promoting community development and that has been certified by the CDFI
Fund as meeting the eligibility requirements set forth in 12 CFR
1805.201;
(w) Community Development Financial Institutions Fund (or CDFI
Fund) means the Community Development Financial Institutions Fund, a
wholly owned government corporation within the U.S. Department of the
Treasury, established under the Riegle Community Development Banking
and Financial Institutions Act of 1994 (12 U.S.C. 4701 et seq.), as
amended;
(x) Credit Enhancement means such instrument or document proffered
by an Eligible CDFI to enhance the credit quality of a Bond and/or Bond
Loan. Credit Enhancements may include, but are not limited to, pledges
of financial resources and lines and letters of credit issued by: an
Eligible CDFI; an Affiliate; a regulated financial institution; a
foundation; or another entity. The Risk-Share Pool is not a form of
Credit Enhancement;
(y) Department Opinion means an internal opinion by the CDFI Fund
regarding compliance by the Qualified Issuer with the requirements for
approval of a Guarantee;
(z) Designated Bonding Authority (or DBA) means a Qualified Issuer
selected by the CDFI Fund to issue Bonds on behalf of certain Eligible
CDFIs and
[[Page 8313]]
make Bond Loans to such Eligible CDFIs, pursuant to this interim rule;
(aa) Eligible Community Development Financial Institution (or
Eligible CDFI) means a Certified CDFI that has submitted an application
to a Qualified Issuer for a Bond Loan, has been deemed creditworthy
based on the Bond Loan Requirements, and has received a Bond Loan;
(bb) Eligible Community or Economic Development Purpose (or
Eligible Purpose) means the allowable uses of Bond Proceeds and Bond
Loan proceeds, which includes financing or Refinancing for community or
economic development purposes described in 12 U.S.C. 4707(b), including
but not limited to community or economic development purposes in Low-
Income Areas or Underserved Rural Areas, as deemed eligible by the CDFI
Fund in its sole discretion; Bond Issuance Fees in an amount not to
exceed one percent of Bond Loan proceeds; and capitalization of Loan
Loss Reserves in an amount that is up to five percent of the par amount
of the Bond Loan, or such other amount that is determined by the CDFI
Fund in its sole discretion;
(cc) Guarantee means the guarantee by the Guarantor, pursuant to an
Agreement to Guarantee, of the repayment of 100 percent of the
Verifiable Losses of Principal, Interest, and Call Premium, if any, on
the corresponding Bonds issued as part of a Bond Issue; each Guarantee
shall be for a Bond Issue of at least $100,000,000, plus the related
interest and call premiums;
(dd) Guarantee Application means the application document that a
Qualified Issuer submits in order to apply for a Guarantee;
(ee) Guarantor means the Secretary of the Treasury or the
Secretary's designee;
(ff) Investment Area means a geographic area meeting the
requirements of 12 CFR 1805.201(b)(3)(ii);
(gg) Loan Loss Reserves means the use of Bond Loan proceeds
(secured by a Principal Loss Collateral Provision) for a set aside in
the form of cash reserves that serve as a safeguard to protect the
Eligible CDFI against future losses for any loans for community or
economic development purposes described in 12 U.S.C. 4707 (b),
including community or economic development purposes in Low-Income
Areas or Underserved Rural Areas, within the Eligible CDFI's portfolio;
(hh) Low-Income means an income, adjusted for family size, of not
more than: (1) for Metropolitan Areas, 80 percent of the area median
family income; and (2) for non-Metropolitan Areas, the greater of: (1)
80 percent of the area median family income; or (2) 80 percent of the
Statewide non-Metropolitan Area median family income;
(ii) Low-Income Area means a census tract or block numbering area
in which the median income does not exceed 80 percent of the median
income for the area in which such census tract or block numbering area
is located. With respect to a census tract or block numbering area
located within a Metropolitan Area, the median family income shall be
at or below 80 percent of the Metropolitan Area median family income or
the national Metropolitan Area median family income, whichever is
greater. In the case of a census tract or block numbering area located
outside of a Metropolitan Area, the median family income shall be at or
below 80 percent of the statewide non-Metropolitan Area median family
income or the national non-Metropolitan Area median family income,
whichever is greater;
(jj) Master Servicer/Trustee means a third party trust company or
financial institution that is in the business of administering
facilities similar to the Bonds and Bond Loans, has been deemed
acceptable by the CDFI Fund, and whose duties include, among others,
exercising fiduciary powers to enforce the terms of Bonds and Bond
Loans pursuant to the Bond Trust Indenture entered into by and between
the Master Servicer/Trustee and the Qualified Issuer, overseeing the
activities of Servicers, and facilitating Bond principal and interest
payments to the Bond Purchaser;
(kk) Metropolitan Area means an area that contains an urban core
based statistical area of 50,000 or more population and is designated
as such by the Office of Management and Budget pursuant to 44 U.S.C.
3504(e), 31 U.S.C. 1104(d) and Executive Order 10253 (3 CFR, 1949-1953
Comp., p. 758), as amended;
(ll) Notice of Guarantee Availability (or NOGA) means the notice,
published by the CDFI Fund, that announces to all interested parties
the opportunity to submit Qualified Issuer Applications and Guarantee
Applications pursuant sections 1808.400 and 1808.401 of this interim
rule;
(mm) Principal Loss Collateral Provision means a cash or cash
equivalent guarantee or facility provided in lieu of pledged collateral
set forth in the Bond Documents and Bond Loan documents;
(nn) Program Administrator means the Qualified Issuer, or an entity
designated by the Qualified Issuer and approved by the CDFI Fund, that
performs certain administrative duties related to application
preparation, compliance monitoring, and reporting, as well as other
duties set forth under section 1808.606 of this interim rule;
(oo) Qualified Issuer means a Certified CDFI, or any entity
designated by a Certified CDFI to issue Bonds on its behalf, that meets
the qualification requirements set forth in section 1808.200 of this
interim rule, and that has been approved as such by the CDFI Fund
pursuant to review and evaluation of the Qualified Issuer Application;
(pp) Qualified Issuer Application means the application document
that a Certified CDFI (or any entity designated by a Certified CDFI to
issue Bonds on its behalf) submits to the CDFI Fund in order to be
approved as a Qualified Issuer prior to, or simultaneously with, a
Guarantee Application;
(qq) Qualified Secondary Loan Receivable means payment receivables
from the Secondary Loan(s) relating to the corresponding Bond Loan;
(rr) Refinance (or Refinancing) means the use of Bond Proceeds to
refinance an Eligible CDFI's or Secondary Borrower's existing loan,
which must have been used for an Eligible Purpose;
(ss) Relending Fund means the fund maintained by the Master
Servicer/Trustee to allow an Eligible CDFI to relend Secondary Loan
repayments for Eligible Purposes, not to exceed 10 percent of the
principal amount outstanding of the Bonds, minus the Risk Share Pool;
the Relending Fund will include a Relending Account for each Bond
Issue; and each Relending Account will include a Relending Subaccount
for each Bond Loan;
(tt) Risk-Share Pool means an account maintained by the Master
Servicer/Trustee throughout the term of a Guarantee to cover losses
before the Guarantee is exercised; the Risk-Share Pool is capitalized
by pro rata payments equal to three percent of the amount disbursed on
the Bonds from all Eligible CDFIs within a Bond Issue; payments must be
funded at each disbursement under the Bond and associated Bond Loan;
amounts in the Risk-Share Pool will not be returned to the Eligible
CDFIs until maturity of all of the Bonds, and termination of all Bond
Loans, within a Bond Issue;
(uu) Secondary Borrower means an entity that has made application
to the Eligible CDFI for a Secondary Loan, been deemed creditworthy by
the Eligible CDFI, meets the criteria set forth in the applicable
Secondary Loan Requirements to receive a Secondary Loan, and has
received a Secondary Loan;
[[Page 8314]]
(vv) Secondary Capital Distribution Plan means the component of the
Capital Distribution Plan that pertains to the making of Secondary
Loans, demonstrates the Eligible CDFI's comprehensive plan for lending,
disbursing, servicing and monitoring Secondary Loans, includes a
description of how the proposed Secondary Loan will meet Eligible
Purposes and meets such other the requirements as may be designated in
the applicable Notice of Guarantee Availability;
(ww) Secondary Loan means the use of Bond Loan proceeds by an
Eligible CDFI to finance or Refinance a loan to a Secondary Borrower
for Eligible Purposes, which meets the applicable Secondary Loan
Requirements;
(xx) Secondary Loan Requirements mean the minimum required criteria
used by each Eligible CDFI (in addition to the Eligible CDFI's
underwriting criteria) to evaluate a request by a Secondary Borrower
applicant for a Secondary Loan. The Secondary Loan Requirements will be
established by the CDFI Fund and incorporated into the Bond Loan
documents;
(yy) Servicer means the Qualified Issuer, or an entity designated
by the Qualified Issuer and approved by the CDFI Fund, to perform
various Bond Loan servicing duties, as set forth in this part;
(zz) Special Servicer means the Master Servicer/Trustee, or an
entity designated by the Master Servicer/Trustee and approved by the
CDFI Fund, that performs certain administrative duties related to the
restructuring of Bond Loans that are in or about to enter into an event
of default as well as other duties set forth under section 1808.606(d)
of this interim rule;
(aaa) State means any of the States of the United States, the
District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth
of the Northern Mariana Island, Guam, the Virgin Islands, American
Samoa, the Trust Territory of the Pacific Islands, and any other
territory of the United States;
(bbb) Statement of Proposed Sources and Uses of Funds means the
component of the Guarantee Application that describes the proposed uses
of Bond Proceeds and the proposed sources of funds to repay principal
and interest on the Bonds and the Bond Loans;
(ccc) Targeted Population means individuals or an identifiable
group of individuals who are Low-Income persons or lack adequate access
to Financial Products or Financial Services and meet the requirements
of 12 CFR 1805.201(b)(3)(iii);
(ddd) Trust Estate means the Bond Loan agreement and promissory
notes evidencing the Bond Loan, all funds and accounts related to the
Bonds and held by the Master Servicer/Trustee pursuant to the Bond
Trust Indenture including, but not limited to, the Revenue Accounts and
the Relending Accounts (as such terms are defined in subsection
1808.606(f)), and any additional collateral pledged directly by the
Eligible CDFI;
(eee) Underserved Rural Area means an area that has significant
unmet needs for loans, Equity Investments, or Financial Services (as
those terms are defined in 12 CFR 1805.104) and is not contained within
either a Consolidated Metropolitan Statistical Areas (CMSA) or Primary
Metropolitan Statistical Areas (PMSA), as such areas are defined in OMB
Bulletin No. 99-04 (Revised Statistical Definitions of Metropolitan
Areas (MAs) and Guidance on Uses of MA Definitions); and
(fff) Verifiable Losses of Principal, Interest, and Call Premium
means any portion of required debt payments related to or arising out
of a Bond and Bond Loan, or the enforcement of either of them, that the
Qualified Issuer is unable satisfy.
Sec. 1808.103 Participant not instrumentality.
No participant in the CDFI Bond Guarantee Program shall be deemed
to be an agency, department, or instrumentality of the United States.
Sec. 1808.104 Deviations.
To the extent that such requirements are not specified by statute,
the Secretary of the Treasury in consultation with the Office of
Management and Budget, may authorize deviations on an individual or
general basis from the requirements of this interim rule upon a finding
that such deviation is essential to program objectives, and the special
circumstances stated in the proposal make such deviation clearly in the
best interest of the Federal Government. All proposals must be in
writing and supported by a statement of the facts and the grounds
forming the basis of the deviation. For deviations of general
applicability, after a determination is made by the Secretary of the
Treasury based on the deviation proposal, the CDFI Fund must publish
notification of granted deviations in the Federal Register. Any
deviation that was not captured in the original credit subsidy cost
estimate will require either additional fees, or discretionary
appropriations to cover the cost.
Sec. 1808.105 Relationship to other CDFI Fund programs.
Award funds received under any other CDFI Fund program cannot be
used by any participant, including Qualified Issuers, Eligible CDFIs
and Secondary Borrowers, to pay principal, interest, fees,
administrative costs, or issuance costs (including Bond Issuance Fees)
related to the CDFI Bond Guarantee Program, or to fund the Risk-Share
Pool.
Sec. 1808.106 OMB control number.
The collection of information requirements in this part are subject
to the review of the Office of Management and Budget (OMB).
Subpart B--Eligibility
Sec. 1808.200 Qualified Issuers.
(a) Requirements and qualifications. An applicant shall be deemed a
Qualified Issuer if it is determined, in writing by the CDFI Fund, to
meet the following criteria:
(1) The applicant must be a Certified CDFI, or an entity designated
by a Certified CDFI to issue Bonds on its behalf;
(2) The applicant must have appropriate expertise, capacity, and
experience, or otherwise be qualified to issue Bonds for Eligible
Purposes;
(3) The applicant must have appropriate expertise, capacity, and
experience, or otherwise be qualified to make Bond Loans for Eligible
Purposes;
(4) The applicant must have appropriate expertise, capacity, and
experience to serve or have identified qualified entities that will
serve as its Program Administrator and Servicer; and
(5) The applicant must meet such other criteria as may be required
by the CDFI Fund pursuant to this interim rule and the applicable
Notice of Guarantee Availability.
(b) Approval. The designation of an applicant as a Qualified Issuer
does not ensure that the Guarantor will approve a Guarantee Application
or issue a Guarantee. In order for the Guarantor to approve a Qualified
Issuer's Guarantee Application, the Qualified Issuer must meet all
applicable Guarantee Application requirements including, but not
limited to, creditworthiness and other requirements.
(c) Qualified Issuer responsibilities. The responsibilities of a
Qualified Issuer shall include, but are not limited to:
(1) Preparing and submitting the Guarantee Application on behalf of
Eligible CDFI applicants that designated it to serve as Qualified
Issuer, including providing any additional information needed for
review by the CDFI Fund;
[[Page 8315]]
(2) During the CDFI Fund's review and evaluation of the Guarantee
Application, serving as primary point of contact between the CDFI Fund
and the Eligible CDFI applicants that designated the Qualified Issuer
to serve on their behalf;
(3) Issuing the Bond for purchase by the Bond Purchaser;
(4) Making Bond Loans to Eligible CDFIs, ensuring that 100 percent
of Bond Proceeds are used to make Bond Loans;
(5) Charging interest on the Bond Loans as set forth in this
interim rule and Bond Loan documents, and providing for such a schedule
of repayment of Bond Loans as will, upon the timely repayment of the
Bond Loans, provide adequate and timely funds for the payment of
principal and interest on the Bonds;
(6) During the duration of the Bonds and the Bond Loans, serving as
primary point of contact between the CDFI Fund and Eligible CDFIs;
(7) Overseeing the work of, or serving in the capacity of, the
Program Administrator and Servicer;
(8) Enforcing the terms and requirements of the Bond Trust
Indenture including, but not limited to: ensuring the repayment of Bond
Loans in a timely manner pursuant to the terms of Bond Loan documents;
assigning delinquent Bond Loans to the Guarantor upon demand by the
CDFI Fund or the Guarantor; and ensuring that the Master Servicer/
Trustee establishes and maintains the Risk-Share Pool throughout the
term of the Guarantee;
(9) Reviewing collateral and Credit Enhancement requirements for
each Bond Loan and providing information on such collateral and Credit
Enhancement, as requested, to the CDFI Fund;
(10) Making payment of the Agency Administrative Fee to the CDFI
Fund;
(11) Submitting all required reports and additional documentation
(including reconciling financial data and Capital Distribution Plan
updates, as necessary); and
(12) Such other duties and responsibilities as the CDFI Fund, the
Guarantor, or the Bondholder may require.
(d) Bond Issuance Fees. The Qualified Issuer may charge Bond
Issuance Fees and all fees reasonable and necessary for administering
and servicing the Bonds or the Bond Loans, post issuance, to Eligible
CDFIs.
(e) Restriction. A Qualified Issuer may not receive a Bond Loan
under any Bond Issuance for which it serves as a Qualified Issuer.
Sec. 1808.201 Designated Bonding Authority.
(a) General. In its sole discretion, the CDFI Fund may solicit
Qualified Issuer Applications from entities proposing to serve as the
Designated Bonding Authority (DBA). The CDFI Bond Guarantee Program
shall only have one DBA at any given time. In order to be selected to
serve as the DBA, the entity must meet all qualifications of a
Qualified Issuer set forth in section 1808.200 of this interim rule;
additional qualifications may be set forth in the applicable NOGA as
determined by the CDFI Fund.
(b) Selection. The DBA will serve as a CDFI Fund-selected Qualified
Issuer and designated Qualified Issuer for Eligible CDFIs that do not
elect to designate another Qualified Issuer. The DBA will prepare and
submit a Guarantee Application on behalf of such Eligible CDFI
applicants, in accordance with such criteria set forth in this interim
rule, the applicable Notice of Guarantee Availability and the Qualified
Issuer Application.
Sec. 1808.202 Eligible CDFIs.
Each Eligible CDFI applicant seeking a Bond Loan must meet the
following criteria:
(a) Be certified by the CDFI Fund as meeting the eligibility
requirements set forth in 12 CFR 1805.201;
(b) Have the appropriate expertise, capacity, and experience, or
otherwise be qualified to use the proceeds of Bond Loans for Eligible
Purposes; and
(c) Meet such other criteria and requirements set forth in the
applicable Notice of Guarantee Availability, the Guarantee Application,
the Bond Loan Requirements, related Bond and Bond Loan documents, and
such other requirements of the CDFI Fund.
Subpart C--Interest Rates; Terms and Conditions of Bonds, Bond
Loans, and Secondary Loans
Sec. 1808.300 Interest rates.
(a) Interest rates. (1) A Bond Rate will be established by the Bond
Purchaser as of the date of the respective advance of funds, as
provided in the Bond. The Bond Rate for each advance of funds must be
fixed and consistent with Federal credit policies outlined in OMB
Circular A-129. The FFB, as Bond Purchaser, will set rates to the
borrower pursuant to section 6(b) of the Federal Financing Bank Act (12
U.S.C. 2285(b)) and the FFB Lending Policy. This rate will be indexed
to the appropriate Treasury rate based on the Treasury yield curve and
include a spread to be determined by the Bond Purchaser; variable Bond
Rates are not permitted.
(2) Interest on each advance of funds under a Bond shall be
computed as provided in the Bond.
(3) A principal and interest payment schedule will be determined
and provided to the Qualified Issuer for each advance of funds under a
Bond, based on the Bond Rate established for the respective advance.
The final principal and interest payment schedule for amounts due under
a Bond will be the aggregation of the individual principal and interest
payment schedules for all advances of funds under the Bond.
(4) The Bond Loan Rate shall be the same as the Bond Rate on the
particular advance of funds under the Bond that funds the Bond Loan.
(5) The rate of interest for each Secondary Loan shall be
established by the Eligible CDFI in accordance with subsection
1808.307(c), and may be subject to limitations specified in the
applicable NOGA.
(b) Bond Loan payment default interest rate. In the event of a
payment default on a Bond Loan, the Eligible CDFI shall pay interest on
any overdue amount from its due date to the date of actual payment at
the Bond Loan Payment Default Rate. The Bond Loan Payment Default Rate
shall be calculated in the same manner as a late charge is calculated
under the underlying Bond.
Sec. 1808.301 Eligible uses of Bond Proceeds.
Bond Proceeds must be used by a Qualified Issuer to finance Bond
Loans or Refinance loans to Eligible CDFIs for Eligible Purposes as
defined in section 1808.102 of this interim rule. A Qualified Issuer
that is also a Certified CDFI may not finance a Bond Loan to itself or
refinance its own loan. One hundred percent of the principal amount of
each Bond must be used to make Bond Loans. As a Bond Loan is repaid,
such repaid Bond Loan proceeds in excess of those required for debt
service payments on the Bond must be used to repay the Bond or held in
the Relending Account and used for additional Secondary Loans, to the
extent authorized under Sec. 1808.308.
Sec. 1808.302 Bond terms and conditions.
(a) Maturity date. As required by 12 U.S.C. 4713a(e)(1)(D), the
maturity date of a Bond shall not be later than 30 years after the Bond
Issue Date. The maturity date for any advance of funds under a Bond
shall not be later than the maturity date of the Bond.
(b) Nonrecourse obligation. Each Bond shall be a nonrecourse
obligation of the Qualified Issuer, payable solely
[[Page 8316]]
from amounts available pursuant to the Bond Documents.
(c) Terms. The Bonds may contain only terms that are consistent
with the lending policies and terms of the Bond Purchaser.
(d) No subordination. The Bonds or Bond Loans may not be
subordinated to any new or existing liability and effective
subordination of the Bonds or Bond Loans to tax-exempt obligations will
render the Guarantee void, in accordance with OMB Circular No. A-129
(Policies for Federal Credit Programs and Non-Tax Receivables) and
applicable provisions of the Internal Revenue Code.
(e) Other limitations. The CDFI Fund may impose other limitations
as appropriate to administer the CDFI Bond Guarantee Program including,
but not limited to, requiring Qualified Issuers to obtain Credit
Enhancement to safeguard against the risk of default.
(f) Terms for Bond issuance and disbursement of Bond Proceeds. (1)
The Qualified Issuer must execute Bond Loan documents for 100 percent
of the principal amount of each Bond on the Bond Issue Date. There will
be an annual assessment to determine whether the Qualified Issuer is
subject to the repayment provision established in 12 U.S.C.
4713a(c)(4). Terms and conditions for the annual assessment will be set
forth in the applicable Notice of Guarantee Availability.
(2) Disbursements of Bond Proceeds to the Qualified Issuer shall be
made pursuant to an advance request process established by the Bond
Purchaser and the CDFI Fund under which the Qualified Issuer shall
request an advance of funds under a Bond.
(g) Amortization of Bond. The principal amount of each advance of
funds under a Bond shall amortize in level debt service payments of
principal and interest, which payments shall be due either quarterly or
semi-annually, as determined by the Qualified Issuer and the Bond
Purchaser, and which shall begin on the first principal payment date
specified in the Bond, as determined by the Qualified Issuer and the
Bond Purchaser. Prior to the first principal payment date, interest
accrued shall be due on the payment dates specified in the Bond, as
determined by the Qualified Issuer and the Bond Purchaser.
(h) Optional prepayment of Bonds. All or a portion of any advance
of funds under a Bond, or the Bond in its entirety, may be prepaid by
the Qualified Issuer at any time. Any partial prepayment of an advance
shall be in an amount equal to at least $100,000 of principal. Each
partial prepayment of an advance of funds under a Bond shall be applied
in the manner set forth in the Bond. Any partial or full prepayment of
an advance of funds under a Bond shall be subject to the payment of a
prepayment price, as provided in the Bond Documents.
(i) Mandatory prepayment of Bonds. (1) Any Bond shall be subject to
mandatory prepayment if Bond Loans or Secondary Loans are not made in a
timely manner, as follows:
(i) On the Calculation Date (as defined in subsection 1808.308(e))
of each year, any amount retained in the Relending Subaccount that
exceeds the Relending Subaccount Maximum (as defined in subsection
1808.308(d)) by $100,000 or more shall be applied to prepay Bonds on
the next succeeding payment date.
(ii) Any amounts derived from the liquidation of collateral from
the Bond Loan and/or Secondary Loan in connection with the exercise by
the Guarantor, the Qualified Issuer or the Bondholder of remedies upon
default of the Bond Loan shall be applied, immediately upon
liquidation, in the following order (inclusive of reasonable fees and
expenses associated therewith):
(A) To the repayment of any amounts drawn under the Guarantee;
(B) To the prepayment of Bonds, in a like amount;
(C) To the replenishment of any funds drawn from the Risk-Share
Pool Fund; and
(D) To the Eligible CDFI for application in accordance with the
Secondary Loan documents.
(2) When an amount is required to be applied as a mandatory
prepayment of Bonds, the Qualified Issuer may select which advances of
funds under a Bond are to be prepaid. Any amount applied as a partial
prepayment of an advance under a Bond shall be applied as provided in
the Bond. Any partial or full prepayment of an advance of funds under a
Bond shall be subject to the payment of a prepayment price, as provided
in the Bond Documents.
Sec. 1808.303 Risk-Share Pool.
The Master Servicer/Trustee, on behalf of the Qualified Issuer and
for the benefit of the Bondholder, shall establish a Risk-Share Pool
that is funded at each disbursement of the Bond Loan proceeds by
payment from each Eligible CDFI in accordance with 12 U.S.C. 4713a(d).
The Risk-Share Pool must remain in place throughout the term of the
Guarantee. Amounts in the Risk Share Pool Fund will not be returned to
Eligible CDFIs until maturity of all of the Bonds, and termination of
all of the Bond Loans, within a Bond Issue.
(a) At each disbursement of the Bond Loan proceeds, each Eligible
CDFI shall deposit an amount that is equal to three percent of the
disbursement, for a total of three percent of the guaranteed amount
outstanding of the Bond, from monies other than Bond Loan proceeds,
into the applicable subaccount of the Risk-Share Pool Fund. Such monies
shall remain in said account throughout the term of the Bond.
(b) Any interest on a Bond Loan in excess of the Bond Loan Rate
derived by the Qualified Issuer during any period during which the Bond
Loan Payment Default Rate applies shall also be deposited in the Risk-
Share Pool Fund.
(c) The Risk-Share Pool Fund shall be applied by the Master
Servicer/Trustee to payments of debt service on the Bond Issue in the
event that the Eligible CDFI defaults in the corresponding payment of
debt service on the Bond Loan. The defaulted Eligible CDFI's deposit
shall be applied first to any such payment of debt service. After
depletion of the defaulted Eligible CDFI's deposit, each remaining
Eligible CDFI's deposit shall be applied prorata to any such payment of
debt service. Monies on deposit in the Risk-Share Pool Fund shall be
applied to such payments and shall be depleted in full prior to any
draw on the Guarantee.
(d) Eligible CDFIs (excluding the Eligible CDFI in default and
responsible for a draw) shall not be required to replenish the Risk-
Share Pool Fund in the event of a draw.
(e) The Risk Share Pool deposit shall be sufficient collateral to
secure any draw on Bond Loan proceeds related to the costs of issuance
pursuant to 1808.304(b).
(f) In the event of a payment default on the Bond Loan by an
Eligible CDFI, the Qualified Issuer shall notify the CDFI Fund and
request permission to draw from the Risk-Share Pool to cover any
default of principal and interest payments due to the Bond Purchaser.
(g) Amounts in the Risk Share Pool Fund will not be returned to
Eligible CDFIs until maturity of all of the Bonds, and termination of
all of the Bond Loans, within a Bond Issue. Upon maturity of all of the
Bonds, and termination of the Bond Loans, within a Bond Issue, the pro
rata amount of each Eligible CDFI's payments in the Risk-Share Pool
shall be returned to each Eligible CDFI; provided however, that such
Eligible CDFI has properly replenished any draws on the Risk-Share Pool
attributed to nonpayment of its Bond Loan and the corresponding Bond.
[[Page 8317]]
Sec. 1808.304 Eligible uses of Bond Loan proceeds.
(a) Eligible uses. Bond Loan proceeds shall be only used for
Eligible Purposes, to prefund one monthly installment of Bond Loan
payments, and to pay Bond Issuance Fees. As a Bond Loan is repaid, such
repaid Bond Loan proceeds must be held in the Relending Account and
used for additional Secondary Loans, to the extent authorized under
Sec. 1808.308.
(b) Bond Issuance Fees. (1) Amounts not to exceed one percent of
Bond Loan proceeds may be applied to pay Bond Issuance Fees. Bond Loan
proceeds that are used to pay Bond Issuance Fees shall be applied in
the following order of priority:
(i) To pay reasonable transaction fees and expenses of the
Qualified Issuer, its advisors and consultants, related to the Bond
issuance (but not including any salaries or administrative costs of the
Qualified Issuer unrelated to the Bond issuance);
(ii) To pay reasonable transaction fees and expenses of the Master
Servicer/Trustee, its advisors and consultants, related to the Bond
issuance; and
(iii) To pay reasonable transaction fees and expenses of the
Eligible CDFI, its advisors and consultants, related to the making of
the Bond Loan.
(2) Any fees and expenses arising out of each transaction which, in
the aggregate, exceed the one percent limit on Bond Issuance Fees
payable from Bond Loan proceeds must be paid by the Eligible CDFI from
monies other than Bond Loan proceeds.
(c) Prefunding of Bond Loan payments. Bond Loan proceeds may be
used to prefund one monthly installment of Bond Loan payments.
Sec. 1808.305 Bond Loan terms and conditions.
(a) Maturity date. The maturity date of a Bond Loan shall not be
later than 30 years after the Bond Issue Date. The maturity date of
Bond Loans may be earlier than, but may not be later than, the maturity
date of the corresponding Bond.
(b) Bond Loan general recourse obligation; Collateral. (1) The Bond
Loan shall be a general recourse obligation of the Eligible CDFI.
(2) The Bond Loan shall be further secured by a first lien of the
Master Servicer/Trustee, on behalf of the Bondholder, on:
(i) The Trust Estate;
(ii) Qualified Secondary Loan Receivables; and
(iii) Either:
(A) An assignment of the Secondary Loan collateral (other than a
Principal Loss Collateral Provision) from the Eligible CDFI to the
Master Servicer/Trustee; or
(B) Provision of a Principal Loss Collateral Provision for the
benefit of the Master Servicer/Trustee, in accordance with the Bond
Loan Requirements and the Secondary Loan Requirements, as applicable.
(3) The CDFI Fund may, in its sole discretion, approve alternative
forms of Bond Loan collateral.
(4) A parity first lien on pledged collateral may be accepted, in
the sole discretion of the CDFI Fund.
(5) If any collateral becomes non-performing during the term of the
Bond Loan, the Guarantor may require the applicable Eligible CDFI to
substitute other collateral that is of equal quality to the initial
collateral, when performing, acceptable to the Guarantor in its sole
discretion.
(6) An Eligible CDFI's parent organization, Affiliate, or an entity
that is related to the Eligible CDFI through its management structure,
may assume limited recourse obligation for the Bond Loan if it provides
Credit Enhancement and/or pledges financial resources or such other
financial support or risk mitigation that would enhance the Eligible
CDFI's creditworthiness and its ability to repay the Bond Loan, thereby
decreasing the risk underlying the Guarantee.
(c) Disbursement of Bond Loan proceeds. (1) Bond Loans shall be
draw-down loans. Disbursements of Bond Loan proceeds to the Eligible
CDFI shall be made pursuant to a requisition process established by the
Bond Purchaser and the CDFI Fund, which shall include a process by
which the Qualified Issuer shall request an advance from the Bondholder
under the Bond and a process by which the Eligible CDFI shall request
disbursement from the Qualified Issuer.
(2) Each requisition shall be accompanied by invoices and
certifications by the Eligible CDFI (and the Secondary Borrower, if
applicable) as to expenditure of proceeds for Eligible Purposes.
(3) No Bond Loan proceeds may be disbursed later than 60 months
after the Bond Issue Date. Any Bond Loan proceeds not disbursed will
have been forfeited by the Eligible CDFI.
(4) Disbursements to capitalize the Eligible CDFI's Loan Loss
Reserves shall be made pursuant to a requisition process established by
the Qualified Issuer and the CDFI Fund.
(d) Amortization of Bond Loan. Each Bond Loan shall amortize in the
same manner as the corresponding Bond; provided that principal and/or
interest on each Bond Loan shall be payable to the Qualified Issuer in
monthly installments based on the required quarterly or semi-annual
installments, as applicable, due on the corresponding Bond; provided
further, that each Eligible CDFI shall prefund one monthly payment
installment not later than the thirtieth day prior to the first payment
date of the corresponding Bond so that on the thirtieth day prior to
such Bond payment date, the Eligible CDFI shall have paid in full all
amounts due on the Bond payment date.
(e) Optional prepayment of Bond Loan. The Bond Loan shall be
subject to prepayment, in whole or in part, at the option of the
Eligible CDFI in accordance with the optional prepayment provisions of
the corresponding Bond (including the required prepayment minimums of
$100,000) and shall be subject to the payment of a prepayment price, as
determined by the Bondholder in accordance with the corresponding Bond.
(f) Mandatory prepayment of Bond Loan. The Bond Loan shall be
subject to mandatory prepayment by the Eligible CDFI in accordance with
the mandatory prepayment provisions of the corresponding Bond.
Sec. 1808.306 Conditions precedent to Bond and Bond Loan.
The ability of the Qualified Issuer to issue a Bond and make a Bond
Loan shall be subject to the satisfaction of the following conditions
precedent:
(a) Evidence satisfactory to the Qualified Issuer that the Eligible
CDFI will comply with the terms and conditions of the Bond Loan
documents, including repayment of the Bond Loan;
(b) Evidence satisfactory to the Qualified Issuer, the Guarantor,
and the CDFI Fund that the Eligible CDFI has the authority to enter
into the Bond Loan, has secured the Credit Enhancement, if any,
demonstrated a reasonable prospect of repayment of the Bond Loan, and
pledged the collateral (including executed security documents, UCC-1
financing statements or mortgages, as applicable);
(c) A Guarantee Application that has been approved by the
Guarantor;
(d) A satisfactory credit review by the CDFI Fund and in compliance
with the Bond Loan Requirements, including submission of complete and
accurate Guarantee Application materials, submitted in a timely manner,
demonstrating the Eligible CDFI's ability to repay the Bond Loan;
(e) Opinions of legal counsel to the Qualified Issuer and the
Eligible CDFI;
(f) Executed Bond Loan documents;
[[Page 8318]]
(g) Organizational documents of the Eligible CDFI;
(h) Certifications by the Qualified Issuer and Eligible CDFIs that
Bond Proceeds and Bond Loan proceeds will not be used for lobbying by
recipients of Federal loans or guarantees;
(i) A statement that no default, event of default, or due and
unsatisfied liability has occurred and is continuing with respect to
any obligations of the Qualified Issuer and each Eligible CDFI to the
CDFI Fund, the Guarantor, the Bond Purchaser, the U.S. Internal Revenue
Service, or any other agency, authority or instrumentality of the
Federal Government; and
(j) Any other conditions precedent set forth in the Bond Loan
documents, including documentation that any credit enhancements have
been secured by the Eligible CDFI.
Sec. 1808.307 Secondary Loan Eligible Purposes; Terms and conditions.
(a) Eligible Purposes. Eligible CDFIs must make Secondary Loans for
Eligible Purposes. Secondary Loan proceeds may not be used to
capitalize loan loss reserves.
(b) Making Secondary Loans. (1) If the Eligible CDFI uses Bond Loan
proceeds to make Secondary Loans, the Eligible CDFI must execute
Secondary Loan documents (in the form of promissory notes) with
Secondary Borrowers as follows:
(i) Not later than 12 months after the Bond Issue Date, Secondary
Loan documents representing at least 50 percent of the Eligible CDFIs'
Bond Loan proceeds allocated for Secondary Loans; and
(ii) Not later than 24 months after the Bond Issue Date, Secondary
Loan documents representing 100 percent of the Eligible CDFIs' Bond
Loan proceeds allocated for Secondary Loans (excluding any amounts used
for payment of Bond Issuance Fees pursuant to section 1808.304(b)).
(2) In the event that the Eligible CDFI does not comply with the
foregoing requirements of paragraphs (b)(1)(i) and (ii) of this
section, the available Bond Loan proceeds at the end of the applicable
period shall be reduced by an amount equal to the difference between
the amount required by paragraphs (b)(1)(i) and (ii) minus the amount
previously committed to the Secondary Loans in the applicable period.
Consistent with the corresponding Bond Loan, the Secondary Loans shall
be drawn down by the Secondary Borrowers upon demonstration of an
Eligible Purpose.
(c) Secondary Loan interest rate. The rate of interest with respect
to each Secondary Loan shall be determined by each Eligible CDFI in
accordance with the following limitations:
(1) With respect to each Secondary Loan, the Eligible CDFI will be
required to propose to the CDFI Fund:
(i) A minimum and maximum spread over the corresponding Bond Loan
Rate which will represent the standard minimum and maximum interest
rate (Minimum Secondary Loan Rate and Maximum Secondary Loan Rate,
respectively); and
(ii) A maximum spread over the Maximum Secondary Loan Rate in event
of a Secondary Loan default (Maximum Secondary Loan Default Spread).
(2) The CDFI Fund reserves the right to evaluate, approve, modify,
or disapprove the proposed Minimum Secondary Loan Rate, Maximum
Secondary Loan Rate, and Maximum Secondary Loan Default Spread before
approving any Guarantee Application.
(d) Secondary Loan default rate. The Eligible CDFI may charge a
default rate on the Secondary Loan so long as such rate does not exceed
the Maximum Secondary Rate, plus the Maximum Secondary Loan Default
Spread.
(e) Secondary Loan maturity. The maturity date with respect to the
Secondary Loan shall be in accordance with the requirements of the
applicable Secondary Loan Requirements. The maturity date of Secondary
Loans may be earlier than, but may not be later than, the maturity date
of the corresponding Bond.
(f) Secondary Loan collateral. (1) The Secondary Loan shall be
payable from amounts made available pursuant to the Secondary Loan
documents, and secured by:
(i) A first lien of the Eligible CDFI on pledged collateral in an
amount that is consistent with the loan-to-value ratio requirements set
forth in the Secondary Loan Requirements; or
(ii) A Principal Loss Collateral Provision for the benefit of the
Master Servicer/Trustee, in accordance with the Bond Loan Requirements
and the Secondary Loan Requirements, as applicable.
(2) Qualified Secondary Loan Receivables may be used as collateral;
provided however, that such collateral is secured by a first lien on
the Secondary Loan collateral in accordance with the Bond Loan
Requirements and the Secondary Loan Requirements, as applicable.
(3) A parity first lien on pledged collateral may be accepted, in
the sole discretion of the CDFI Fund.
(g) Commitments for Secondary Loans. Each proposed Secondary Loan
shall be approved by the credit committee of the Eligible CDFI or its
equivalent, in accordance with the applicable Secondary Loan
Requirements and the Eligible CDFI's own underwriting requirements.
(h) Disbursement of Secondary Loan proceeds. (1) Consistent with
the corresponding Bond Loan, Secondary Loans shall be draw-down loans.
Disbursements of Secondary Loan proceeds to the Secondary Borrower
shall be made pursuant to a requisition process established by the
Qualified Issuer and the CDFI Fund and shall mirror the requirements
for the disbursement of Bond Proceeds.
(2) Each requisition shall be accompanied by invoices and
certifications by the Secondary Borrower as to expenditure of proceeds
for Eligible Purposes. The Eligible CDFI must also attest that the
Secondary Loan conforms to the requirements set forth in the applicable
Secondary Loan Requirements. In the case of Refinancings, the Eligible
CDFI must also attest that the original loan was used for an Eligible
Purpose.
(3) Secondary Loan proceeds shall be disbursed in accordance with
the applicable Secondary Loan Requirements which shall set forth, among
other requirements, that Secondary Loan disbursements shall be made in
accordance with commercially reasonable standards and timeframes for
disbursement based on the nature of the Eligible Purposes. The
Secondary Loan Requirements shall also specify what constitutes a
commercially reasonable timeframe for disbursement in connection with
specific types of Eligible Purposes. Notwithstanding the foregoing,
each Eligible CDFI shall propose a timeframe for disbursement in
connection with each Secondary Loan, which timeframe shall be subject
to the requirements set forth in the Secondary Loan Requirements.
(i) Amortization of Secondary Loans. Secondary Loans shall amortize
as determined by the Eligible CDFI; provided that Secondary Loan
amortization installments shall conform to the requirements of the
applicable Secondary Loan Requirements.
(j) Prepayment of Secondary Loans. Secondary Loans shall be subject
to prepayment as determined by the Eligible CDFI; provided that the
Secondary Loan documents may provide for modification of Secondary Loan
terms (so long as such modification does not affect the corresponding
Bond or Bond Loan) and shall provide for mandatory prepayment of the
Secondary Loan from liquidation of collateral upon the exercise of
default remedies by the Eligible CDFI, the
[[Page 8319]]
Qualified Issuer or the Guarantor as required by the Bond, the Bond
Loan documents, or the Agreement to Guarantee, as applicable.
(k) Repayment of Secondary Loans. As Secondary Loans are repaid,
the Eligible CDFI may, through the Relending Fund, Refinance and
substitute as collateral for the Bond Loan other loan(s) for Eligible
Purposes that meet the required Secondary Loan Requirements, provided
that the Eligible CDFI makes Bond Loan payments as required. If the
outstanding principal balance of the Bond Loan exceeds the outstanding
principal balance of the Bond Loan in use for the Eligible Purposes,
the Eligible CDFI shall repay the difference, which shall be deposited
in the Relending Account, and credited to the corresponding Relending
Subaccount.
Sec. 1808.308 Relending Fund; Relending Account.
(a) General. As Bond Loans are repaid, such amounts in excess of
those required for debt service payments on the Bonds may be held in
the Relending Account and used for additional Secondary Loans, to the
extent authorized in this section.
(b) Application of funds to Secondary Loans. Amounts on deposit in
the Relending Account shall be applied by the Eligible CDFI to make
additional Secondary Loans, the term of which shall not exceed the
maturity of the Bond.
(c) Requirements of Secondary Loans from Relending Account.
Secondary Loans made from the Relending Account shall meet all the
requirements of the Secondary Loan Requirements, and conform to the
following additional conditions:
(1) The Qualified Issuer has received and approved a Bond Loan
commitment request submitted by the Eligible CDFI;
(2) No material event has occurred and is continuing or is
threatened at the Eligible CDFI level or Qualified Issuer level that
adversely affects the Eligible CDFI, the Bond or the Bond Loan;
(3) No Eligible CDFI event of default has occurred and is
continuing with respect to the Bond Loan;
(4) No Qualified Issuer event of default has occurred and is
continuing with respect to the Bond;
(5) There exists no unreplenished draw on the Risk-Share Pool Fund
by the Eligible CDFI;
(6) The maturity of Secondary Loans made from the Relending Fund
shall not extend beyond the maturity date of the corresponding Bond;
and
(7) Any other conditions set forth in this interim rule, the
applicable Notice of Guarantee Availability, the Secondary Loan
Requirements or the Bond Loan documents.
(d) Relending Subaccounts. The balance of each subaccount of the
Relending Fund (each a Relending Subaccount) shall not equal more than
10 percent of the principal amount outstanding of the Bond Loan, minus
the prorata share of the Risk-Share Pool, as of the Calculation Date
(the Relending Subaccount Maximum).
(e) Notification Date. For purposes of this section, Notification
Date means the date on which the Master Servicer/Trustee notifies the
Eligible CDFI that the balance in the applicable Relending Subaccount
exceeds the applicable Relending Subaccount Maximum. Calculation Date
means, following the Notification Date, the earlier of:
(1) The date on which the balance in such Relending Subaccount
becomes less than or equal to the applicable Relending Subaccount
Maximum, or
(2) Six months following the Notification Date.
(f) Mandatory redemption. Any amounts retained in the Relending
Subaccount that exceeds the Relending Subaccount Maximum by $100,000 or
more as of the applicable Calculation Date shall be transferred to the
Redemption Account of the Debt Service Fund (as defined in Sec.
1808.606(f)) to effectuate a mandatory redemption of the corresponding
Bond in accordance with the terms of the Bond Trust Indenture. The
determination of the actual amount on deposit on any Calculation Date
shall exclude amounts then obligated pursuant to any executed
promissory notes, whether then disbursed or undisbursed.
Sec. 1808.309 Restrictions on uses of Bond Proceeds and Bond Loan
proceeds.
Pursuant to 12 U.S.C. 47123a(c)(5), Bond Loan proceeds shall not be
used for:
(a) Political activities;
(b) Lobbying, whether directly or through other parties;
(c) Outreach;
(d) Counseling services;
(e) Travel expenses;
(f) For the salaries or administrative costs of the Qualified
Issuer or any recipients of Bond Proceeds, other than those costs
covered by Bond Issuance Fees;
(g) To fund the Risk-Share Pool;
(h) To pay fees other than Bond Issuance Fees; or
(i) Any other use as may be specified in the applicable Notice of
Guarantee Availability.
Subpart D--Applications for Guarantee and Qualified Issuer
Sec. 1808.400 Notice of Guarantee Availability.
Interested parties will be invited to submit Qualified Issuer
Applications and Guarantee Applications in accordance with this interim
rule and the applicable Notice of Guarantee Availability. The NOGA will
set forth application and eligibility requirements for an entity that
wishes to be designated as a Qualified Issuer (including, in the CDFI
Fund's sole discretion, the Designated Bonding Authority) and a
Qualified Issuer that wishes to be approved to receive a Guarantee. The
NOGA may also contain eligibility requirements, application procedures,
and additional terms and conditions for entities wishing to serve as
Servicers, Program Administrators, and other roles as may be determined
by the CDFI Fund. The NOGA will advise interested parties on how to
apply and will establish criteria, deadlines, and other Qualified
Issuer and Guarantee Application requirements, including specifying any
additional terms and conditions, limitations, special rules,
procedures, and restrictions for a given application period.
Sec. 1808.401 Application requirements.
(a) Qualified Issuer Application. A Qualified Issuer applicant
shall provide all required information in its Qualified Issuer
Application to establish that it meets all criteria for designation as
a Qualified Issuer and can carry out all Qualified Issuer
responsibilities and requirements including, but not limited to,
information that demonstrates that the applicant has the appropriate
expertise, capacity, and experience and is qualified to make,
administer and service Bond Loans for Eligible Purposes. After receipt
of a Qualified Issuer Application, the CDFI Fund may request additional
information and clarifying or technical information on the materials
submitted as part of the Qualified Issuer Application. The CDFI Fund
will provide the template for the Qualified Issuer Application.
(b) Guarantee Application. (1) A Qualified Issuer shall provide all
required information in its Guarantee Application to establish that it
meets all criteria set forth in this interim rule to receive a
Guarantee and can carry out all Guarantee requirements including, but
not limited to, information that demonstrates that the Qualified Issuer
has the appropriate expertise, capacity, and experience and is
qualified to make, administer and service Bond Loans for Eligible
Purposes. The Guarantee
[[Page 8320]]
Application shall include a Capital Distribution Plan and a Secondary
Capital Distribution Plan for each potential Eligible CDFI, as well as
any other requirements set forth in the applicable Notice of Guarantee
Availability or as may be required by the CDFI Fund in its sole
discretion for the evaluation and selection of Guarantee applicants.
After receipt of a Guarantee Application, the CDFI Fund may request
additional information and clarifying or technical information on the
materials submitted as part of the Guarantee Application. The CDFI Fund
will provide the template for the Guarantee Application.
(2) The Capital Distribution Plan shall include, but not be limited
to, the following information:
(i) Statement of Proposed Sources and Uses of Funds;
(ii) For the Qualified Issuer and each Certified CDFI seeking a
Bond Loan, an organizational capacity statement, a plan that describes
how the proposed Bond Loan will meet Eligible Purposes, and a
description of Credit Enhancement, if any;
(iii) A Secondary Capital Distribution Plan, if applicable; and
(iv) Assurances and certifications that not less than 100 percent
of the principal amount of Bonds will be used to make Bond Loans for
Eligible Purposes beginning on the Bond Issue Date, and that Secondary
Loans shall be made as set forth in subsection 1808.307(b).
Subpart E--Evaluation and Selection
Sec. 1808.500 Evaluation of Qualified Issuer Applications.
(a) General. Each Qualified Issuer Application will be evaluated by
the CDFI Fund and, if acceptable, the applicant will be designated as a
Qualified Issuer, at the sole discretion of the CDFI Fund. The
Qualified Issuer Application review and evaluation process will be
based on established standard operating procedures, which may include
interviews of applicants and/or site visits to applicants conducted by
the CDFI Fund. Through the application review process, the CDFI Fund
will evaluate Qualified Issuer applicants on a merit basis and in a
fair and consistent manner. Each Qualified Issuer applicant will be
reviewed on its ability to successfully implement the activities
proposed in its Qualified Issuer Application and carry out the
responsibilities of a Qualified Issuer over the life of the Bond. The
CDFI Fund will periodically reevaluate the Qualified Issuer over the
life of the Bond to ensure it meets the performance standards over the
life of the facilities.
(b) Eligibility and completeness. A Qualified Issuer applicant will
not be eligible to be designated as a Qualified Issuer if it fails to
meet the eligibility requirements described in Sec. 1808.200 of this
part and the applicable NOGA, or if it has not submitted complete and
timely Qualified Issuer Application materials. The CDFI Fund reserves
the right to request additional information from the Qualified Issuer
applicant, as the CDFI Fund deems appropriate.
(c) Substantive review. When evaluating Qualified Issuer
Applications and selecting applicants to be designated as Qualified
Issuers, the CDFI Fund will apply the criteria set forth in the Act at
12 U.S.C. 4713a(a)(8), this interim rule, and the applicable NOGA
including, but not limited to, the following evaluation factors:
(1) The extent to which the Qualified Issuer Application
demonstrates that the applicant possesses the appropriate expertise,
capacity and experience, or other qualifications to manage the Bond
Issue on the terms and conditions set forth in this interim rule and
the applicable NOGA;
(2) The expertise and experience of its Program Administrator and
Servicers;
(3) The Qualified Issuer applicant's demonstrated performance of
financially sound business practices relative to the industry norm for
bond issuers, as evidenced by reports of Appropriate Federal Banking
Agencies, Appropriate State Agencies, and/or auditors;
(4) Information that demonstrates the applicant, its Program
Administrator and Servicers have the appropriate expertise, capacity,
and experience or otherwise be qualified to originate, underwrite,
service and monitor loan portfolios that serve Eligible Purposes and
are targeted toward Low-Income and Underserved Rural Areas; and
(5) Such other criteria that the CDFI Fund deems appropriate for
purposes of evaluating the merits of a Qualified Issuer Application.
Sec. 1808.501 Evaluation of Guarantee Applications.
(a) General. After being designated as a Qualified Issuer, the
Qualified Issuer may submit a Guarantee Application, seeking authority
to issue Bonds and receive a Guarantee on the proposed Bond Issue. A
successful Guarantee Application must:
(1) Demonstrate that the Qualified Issuer and the proposed Eligible
CDFIs have a feasible plan to successfully repay the Bond (including
principal, interest, and call premium) and Bond Loans according to
their respective terms, to the satisfaction of the CDFI Fund; and
(2) Meet any other requirements deemed appropriate by the CDFI Fund
and the Guarantor.
(b) Eligibility and completeness. A Qualified Issuer will not be
eligible to receive a Guarantee if it fails to meet the eligibility
requirements set forth in Sec. 1808.200 of this part and the
applicable NOGA, or if it has not submitted complete and timely
Guarantee Application materials. The CDFI Fund reserves the right to
request additional information from the Qualified Issuer, or to reject
a Guarantee Application as the CDFI Fund may deem appropriate.
(c) Substantive review. In evaluating Guarantee Applications and
selecting a Qualified Issuer to receive a Guarantee, the CDFI Fund and
the Guarantor will apply the criteria set forth in this interim rule
and the applicable NOGA including, but not limited to, the following
evaluation factors:
(1) The extent to which the Guarantee Application proposes
strategies that demonstrate the Qualified Issuer's ability to implement
the Capital Distribution Plan;
(2) The adequacy of proposed risk mitigation provisions designed to
protect the financial interests of the Federal Government based on
information that includes, but is not limited to: the amount and
quality of any Credit Enhancements; the amount and quality of any other
financial resources to be pledged or risk mitigation to be provided by
an Affiliate to the Eligible CDFI through its management structure,
that will assume limited obligation for the Bond Loan and enhance the
Eligible CDFI's creditworthiness and its ability to repay the Bond
Loan; and the provision for an orderly retirement of principal;
(3) The extent to which the Guarantee Application demonstrates that
the Qualified Issuer possesses the appropriate expertise, capacity and
experience, or other qualifications to manage the Bond Issue on the
terms and conditions set forth in this interim rule and the applicable
NOGA;
(4) The Qualified Issuer's demonstrated performance of financially
sound business practices relative to the industry norm for bond
issuers, as evidenced by financial audits and reports of Appropriate
Federal Banking Agencies, Appropriate State Agencies, independent
regulators, or auditors;
(5) Information that demonstrates that the Qualified Issuer has the
appropriate expertise, capacity, and experience or is
[[Page 8321]]
otherwise qualified to make, service and monitor Bond Loans;
(6) The extent to which the proposed Bond Loans are likely to serve
Low-Income Areas or Underserved Rural Areas; and
(7) Such other criteria that the CDFI Fund and the Guarantor deem
appropriate for purposes of evaluating the merits of a Guarantee
Application.
Sec. 1808.502 Evaluation of Designated Bonding Authority
Applications.
In addition to the evaluation criteria for Qualified Issuers set
forth above, DBA applicants must demonstrate the existence of resources
to perform functions of the DBA as set forth in section 1808.201 and
meet any other criteria set forth in the applicable NOGA and that may
be required by the CDFI Fund.
Sec. 1808.503 Consultation with Appropriate Regulatory Agencies.
In the case of any CDFI Bond Guarantee Program applicant that is a
Federally regulated financial institution (or an Affiliate thereof),
the CDFI Fund may consult with the Appropriate Federal Banking Agency
or Appropriate State Agency prior to designating the applicant as a
Qualified Issuer, Servicer, Master Servicer/Trustee, Program
Administrator or other role, making a final Guarantee commitment,
issuing a Guarantee, and/or entering into an Agreement to Guarantee.
The CDFI Fund also reserves the right, in its sole discretion, to
consult with the Appropriate Federal Banking Agency and Appropriate
State Agency with respect to any Eligible CDFI that is proposed to
receive a Bond Loan or any Secondary Borrower that is proposed to
receive a Secondary Loan.
Sec. 1808.504 Selection of Qualified Issuers; Approval for Guarantee.
(a) General. Designation of an applicant as a Qualified Issuer
shall be based on the foregoing evaluation criteria and processes, and
any other requirements or processes that may be set forth in the
applicable NOGA. An applicant may simultaneously apply for Qualified
Issuer designation and a Guarantee; however, the entity must be
designated as a Qualified Issuer before being selected to receive a
Guarantee.
(b) The Guarantor will determine whether a Qualified Issuer will be
authorized to issue Bonds and receive a Guarantee based on the
foregoing evaluation criteria and processes, and any other requirements
or processes set forth in the applicable NOGA.
(1) Not later than 30 days after receipt of a complete Guarantee
Application (or 30 days after designation as a Qualified Issuer, if
submitting simultaneous applications) by a Qualified Issuer, the CDFI
Fund shall provide an internal Department Opinion regarding compliance
by the Qualified Issuer with the requirements of the CDFI Bond
Guarantee Program.
(2) The Guarantor shall approve or deny a Guarantee Application no
later than 90 days after receipt of a complete Guarantee Application,
and all other required information by the CDFI Fund or the Guarantor
with respect to a request for such Guarantee.
(c) The Guarantor may limit the number of Guarantees made per year
or Guarantee Applications accepted to ensure that a sufficient
examination of Guarantee Applications is conducted.
(d) The CDFI Fund shall notify the Qualified Issuer in writing of
the Guarantor's approval or disapproval of a Guarantee Application.
(e) The Guarantor reserves the sole discretion to approve a
Guarantee Application for a Guarantee amount that is less than that
which is requested.
(f) In the event that there are material changes after submission
of a Guarantee Application (including, but not limited to, a revision
of the Capital Distribution Plan or a change in the Certified CDFIs
that are proposed for receiving Bond Loans) prior to or after the
designation as a Qualified Issuer or approval of a Guarantee
Application or Guarantee, the Qualified Issuer or Guarantee applicant
must notify the CDFI Fund of such material changes information in a
timely and complete manner. The Guarantor will evaluate such material
changes, along with the Guarantee Application, to approve or deny the
Guarantee Application and/or determine whether to modify the terms and
conditions of the Guarantee.
Subpart F--Terms and Conditions of Guarantee
Sec. 1808.600 Full faith and credit and incontestability of
Guarantee.
The full faith and credit of the Federal Government is pledged to
the payment of all Bonds issued as part of a Bond Issue with respect to
Verifiable Losses of Principal, Interest, and Call Premium. An executed
Guarantee shall be conclusive evidence that: the Guarantee has been
properly authorized; the underlying Bond qualified for such Guarantee;
and, but for fraud or material misrepresentation, such Guarantee will
be presumed to be legally valid, binding, and enforceable.
Sec. 1808.601 Assignment and transfer of Guarantee.
The Guarantee shall be fully assignable and transferrable to the
capital markets, on terms and conditions that are consistent with
comparable bonds guaranteed by the Federal Government and satisfactory
to the Guarantor and the CDFI Fund.
Sec. 1808.602 Offer of Guarantee.
Upon approval of the Guarantee Application, the Qualified Issuer
will receive from the Guarantor an offer of Guarantee that will set
forth certain required terms and conditions to be fulfilled prior to
issuance of the Guarantee.
Sec. 1808.603 Issuance of Guarantee.
(a) Conditions precedent. The commitment of the Guarantor to issue
a Guarantee shall be subject to conditions precedent that are usual and
customary for financings of this type or otherwise deemed appropriate
by the Guarantor including, but not limited to, the following:
(1) The conditions precedent to the Bond Issue and the making of
the Bond Loan have been satisfied, including a credit review that
indicates a reasonable prospect of repayment as demonstrated by the
CDFI Fund's analysis of the cash flow and collateral provisions of the
Eligible CDFI;
(2) The Qualified Issuer shall have submitted to the CDFI Fund a
complete Guarantee Application, containing all required information
relating to the Bond and the Bond Loan, as required by the Guarantor;
(3) There have been no material changes to the Bond and Bond Loan
documents from the forms thereof approved by the Guarantor and the CDFI
Fund;
(4) The Bond Purchaser and the Qualified Issuer shall have executed
a Bond Purchase Agreement; and
(5) Such additional information or documents as may be required by
the CDFI Fund, the Guarantor, or the Bond Purchaser.
(b) Rescission of approval. The Guarantor, in its sole discretion,
may rescind its approval of a Guarantee Application if:
(1) The Guarantor or the CDFI Fund determines that the Qualified
Issuer cannot, or is unwilling to, provide adequate documentation and
proof of compliance with paragraph (a) of this section within the time
provided for in the offer of Guarantee, or
(2) The Guarantor or the CDFI Fund determines, in its sole
discretion, that the Qualified Issuer no longer meets applicable CDFI
Bond Guarantee Program criteria and requirements.
Sec. 1808.604 Agreement to Guarantee.
(a) General. The Qualified Issuer must enter into an Agreement to
Guarantee
[[Page 8322]]
that sets forth the terms and conditions on which the Guarantor will
provide the Guarantee of the Bonds issued as part of a Bond Issue.
(b) Terms and conditions. The terms and conditions of the Agreement
to Guarantee may include, but are not limited to, the following:
(1) The form and amount of Guarantee;
(2) Any prohibited amendments of Bond Documents or limitations on
transfer of the Guarantee;
(3) Terms and conditions of the Risk-Share Pool and any Credit
Enhancement that may be required by the CDFI Fund and the Guarantor;
(4) Provisions regarding the Agency Administrative Fee;
(5) Representations and warranties of the Qualified Issuer;
(6) Pledged security;
(7) Financial covenants;
(8) Events of default and remedies;
(9) Assignment of Bond Loans to the Guarantor;
(10) Guarantor payment does not discharge Qualified Issuer;
subrogation;
(11) Undertakings for the benefit of the Bondholder including:
notices, registration, prohibited amendments, prohibited transfers, and
indemnification;
(12) Governing law;
(13) Terms and conditions of Bond Loans;
(14) Prohibition against subordination; and
(15) Such other matters as the Guarantor or the CDFI Fund may deem
necessary or appropriate.
(c) Access to funds. In the event that the Qualified Issuer does
not execute Bond Loan agreements for 100 percent of the Bond principal
on the Bond Issue Date, the Qualified Issuer will have no further
access to the amount of funds for which Bond Loan agreements were not
executed.
Sec. 1808.605 Agency Administrative Fee.
The Qualified Issuer shall pay the CDFI Fund annually a fee equal
to 10 basis points (0.1 percent) of the amount of the unpaid principal
of the Bond(s). The initial Agency Administrative Fee must be paid in
full as a condition to closing any Agreement to Guarantee, no later
than the effective date of the Agreement to Guarantee.
Sec. 1808.606 Program Administrator; Servicer; Master Servicer/
Trustee.
(a) General. Bond Loans shall be overseen by qualified Program
Administrators, Servicers, and a Master Servicer/Trustee. For purposes
of maximizing efficiencies and minimizing costs, Program Administrator
and Servicer duties may be consolidated and performed by Qualified
Issuers.
(b) Program Administrator. (1) Duties. The duties of a Program
Administrator, which may be performed by the Qualified Issuer, shall
include, but not be limited to:
(i) Approving and qualifying Eligible CDFI applications for
participation in the Guarantee Application;
(ii) Bond and Bond Loan packaging;
(iii) Reviewing and approving Secondary Loan commitments from
Eligible CDFIs for funds from the Bondholder or the Relending Account
based on the Secondary Loan Requirements;
(iv) Compliance monitoring of Bond Loans and Secondary Loans;
(v) Preparing and submitting reports required by this interim rule;
and
(vi) All other duties and related services that are customarily
expected of a Program Administrator, and as may be required by the CDFI
Fund or the Guarantor.
(2) Selection. There shall be one Program Administrator for each
Bond Issue. The Qualified Issuer applicant shall provide, in its
Qualified Issuer Application, information on its proposed Program
Administrator that demonstrates the appropriate expertise, capacity and
experience, as well as any additional information that may be required
to meet the criteria set forth in the applicable Notice of Guarantee
Availability, including, but not limited to, information on the
entity's management and organization, loan administration, and
financial capability.
(3) Fees and expenses. The Program Administrator's administrative
fees and expenses shall be paid by the Eligible CDFI in accordance with
applicable financing documents.
(c) Servicer. (1) Duties. The duties of a Servicer, which may be
performed by the Qualified Issuer, shall include, but not be limited
to:
(i) Billing and collecting Bond Loan payments from Eligible CDFIs;
(ii) Initiating collection activities on past-due Bond Loans;
(iii) Transferring Bond Loan payments to the respective funds and
accounts managed by the Master Servicer/Trustee;
(iv) Bond Loan administration and servicing;
(v) Systematic and timely reporting of Bond Loan performance
through remittance and servicing reports, and providing such reports as
may be required by this interim rule;
(vi) Proper measurement of annual outstanding Bond Loan
requirements; and
(vii) All other duties and related services that are customarily
expected of Servicers, and as may be required by the CDFI Fund or the
Guarantor.
(2) Selection. There shall be one Servicer for each Bond Issue.
Each Qualified Issuer applicant shall provide, in its Qualified Issuer
Application, information on its proposed Servicer that demonstrates the
appropriate expertise, capacity and experience, as well as any
additional information that as may be required to meet the criteria set
forth in the applicable Notice of Guarantee Availability including, but
not limited to, information on the entity's management and
organization, loan servicing, and financial capability.
(3) Fees and expenses. The Servicer's administrative fees and
expenses for each Bond Issue shall be paid by the associated Eligible
CDFIs in accordance with applicable financing documents.
(d) Special Servicer. (1) Duties. The duties of the Special
Servicer shall be performed by the Master Servicer/Trustee and shall
include, but not be limited to:
(i) Negotiating the restructuring of Bond Loans that are in or
about to enter into an event of Default;
(ii) Initiating foreclosure action and appointing a receiver; and
(iii) Enforcing deficiency judgments.
(2) Evaluation. The Master Servicer/Trustee applicant shall
provide, in its Master Servicer/Trustee application, information on its
proposed Special Servicer capabilities and experience. These
capabilities may be performed by the Master Servicer/Trustee or an
entity designated by the Master Servicer/Trustee. The CDFI Fund shall
evaluate the Master Servicer/Trustee applicant's or its designee's
ability to perform the duties of Special Servicer based on the capacity
and experience in the following areas:
(i) Restructuring, recovery, and foreclosure of loans that are
similar to Bond Loans;
(ii) Financial strength and capacity;
(iii) Managing regional or national intake, processing, or
servicing operational systems and infrastructure of loans that are
similar to Bond Loans;
(iv) Managing regional or national originator communication systems
and infrastructure;
(v) Developing and implementing training and other risk management
strategies on a regional or national basis;
(vi) Compliance monitoring and reporting; and
(vii) Such other criteria that may be required by the CDFI Fund.
(3) Fees and expenses. The Bond Trust Indenture will outline the
Special Servicer's administrative fees and expenses; these fees shall
be paid by the Eligible CDFI in accordance with the
[[Page 8323]]
Bond Trust Indenture and related documents.
(e) Master Servicer/Trustee. (1) Duties. The duties of the Master
Servicer/Trustee shall include, but not be limited to:
(i) The fiduciary power to enforce the terms of Bonds and the Bond
Loans pursuant to the Bond Trust Indenture;
(ii) Establishing and managing the funds and accounts set forth in
this interim rule;
(iii) Providing such reports as required;
(iv) Overseeing the activities of Servicers and managing loan
administration;
(v) Servicing and monitoring of Bond Issues with respect to
repayment obligations to the Bondholder and the terms of the Agreement
to Guarantee;
(vi) Tracking the movement of funds between the accounts of the
Master Servicer/Trustee and all Servicers;
(vii) Ensuring orderly receipt of the monthly remittance and
servicing reports of the Servicers;
(viii) Monitoring collection and foreclosure actions;
(ix) Aggregating the reporting and distribution of funds to the
Qualified Issuer, CDFI Fund, and the Bondholder, as necessary;
(x) Removing and replacing Servicers, as necessary;
(xi) Performing systematic and timely reporting of Bond Loan
performance compiled from Servicers' reports, and providing such
reports as required in this interim rule;
(xii) Ensuring proper distribution of funds to Eligible CDFIs,
servicing the Bonds, and repayment to the Bondholder; and
(xiii) All other duties and related services that are customarily
expected of a Master Servicer/Trustee, and as may be required by the
CDFI Fund.
(2) Selection. There shall be one Master Servicer/Trustee for the
CDFI Bond Guarantee Program. The CDFI Fund shall solicit applications
and make a selection of a Master Servicer/Trustee based on the capacity
and experience of the applicant in the areas set forth in paragraph
(a)(1) of this section and in the following paragraphs (a)(2)(i)
through (vi):
(i) Administration, servicing, and monitoring of loans that are
similar to Bond Loans;
(ii) Financial strength and capacity;
(ii) Managing regional or national intake, processing, or servicing
operational systems and infrastructure of loans that are similar to
Bond Loans;
(iii) Managing regional or national originator communication
systems and infrastructure;
(iv) Developing and implementing training and other risk management
strategies on a regional or national basis;
(v) Compliance monitoring and reporting; and
(vi) Such other criteria that may be required by the CDFI Fund.
(3) Fees and expenses. The Master Servicer/Trustee's administrative
fees and expenses shall be paid by the Eligible CDFI in accordance with
the Bond Trust Indenture and related documents.
(f) Funds and accounts. The following funds shall be established by
the Master Servicer/Trustee at the time of execution of the Bond Trust
Indenture, on behalf of the Qualified Issuer and for the benefit of the
Bondholder. On the Bond Issue Date, separate accounts shall be
established therein for each Bond and, furthermore, within each account
there shall be established a subaccount for each Bond Loan on the date
of the closing of each Bond Loan:
(1) The Project Fund, and therein a Project Account for each Bond:
All disbursements of Bond Proceeds from the Bondholder pursuant to the
requisition processes shall be deposited in the applicable Project
Account or Subaccount, and the Master Servicer/Trustee shall disburse
advances with respect to the Bond Loan to the Eligible CDFI therefrom;
(2) The Revenue Fund, and therein a Revenue Account for each Bond:
All payments of debt service or prepayments on the Bond Loan pursuant
to the Bond Loan documents, other payments by the Eligible CDFI
pursuant to the Bond Loan documents, and any investment income derived
from the corresponding accounts or subaccounts in the Debt Service Fund
shall be deposited in the accounts and subaccounts of the Revenue Fund;
(3) The Debt Service Fund, and therein an Interest Account, a
Principal Account and a Redemption Account for each Bond: Not later
than 30 days prior to a Bond payment date, the Master Servicer/Trustee
shall make the following transfers from the applicable account or
subaccount of the Revenue Fund:
(i) All scheduled payments (amortization installments or at
maturity) of principal received from the Eligible CDFI on the Bond Loan
shall be transferred to the Principal Account or Subaccount;
(ii) All scheduled payments (amortization installments or at
maturity) of interest received from the Eligible CDFI on the Bond Loan
shall be transferred to the Interest Account or Subaccount; and
(iii) All prepayments of principal, interest and premium, if any,
received from the Eligible CDFI on the Bond Loan shall be transferred
to the Redemption Account or Subaccount;
(4) The Administrative Fees Fund, and therein an Administrative
Fees Account for each Bond: All fees necessary for administering and
servicing the Bond or the Bond Loan (including the Agency
Administrative Fee and Bond Issuance Fees), payable by the Eligible
CDFI pursuant to the Bond Loan documents, shall be deposited in the
applicable account or subaccount of the Administrative Fees Fund and,
thereafter, shall be disbursed by the Master Servicer/Trustee to the
subject recipient in accordance with the terms of each such payment;
(5) The Risk-Share Pool Fund, and therein a Risk-Share Pool Account
for each Bond, in accordance with Sec. 1808.303 of this part;
(6) The Relending Fund, and therein a Relending Account for each
Bond, in accordance with Sec. 1808.308 of this part; and
(7) Such other funds and accounts as may be required by the CDFI
Fund and the Qualified Issuer in connection with a Bond Issue, Bond or
Bond Loan.
(g) Other funds and accounts. The Master Servicer/Trustee shall be
permitted to establish such other funds and accounts as deemed
necessary to administer the requirements of the Bond Trust Indenture.
Each account shall be designated by the name of the applicable Bond and
each subaccount shall be designated by the name of the applicable Bond
Loan.
(h) No commingling of funds. No commingling of monies shall be
permitted between accounts or subaccounts.
(i) Permitted investments. Monies on deposit in the Revenue Fund,
the Debt Service Fund, the Risk-Share Pool Fund, the Relending Fund, if
invested, shall be invested in U.S. Treasury securities with maturities
that do not exceed the dates on which monies will be required for
anticipated purposes and may be sold to the extent funds are needed
sooner than anticipated. All interest shall be credited to the relevant
account in the relevant fund.
Sec. 1808.607 Representations and warranties of Qualified Issuer with
respect to Guarantee.
The Qualified Issuer shall represent and warrant to the Guarantor,
at the execution of any Agreement to Guarantee to which it is a party
and thereafter at the closing of any Bond Loan and the issuance of any
Bond, the following:
[[Page 8324]]
(a) The Qualified Issuer is duly organized, validly existing and in
good standing in its State of organization with the power and authority
to enter into the agreements and consummate the transactions thereby
contemplated;
(b) The information contained in the Qualified Issuer Application
is true and correct;
(c) The Bonds, when executed, are and will be duly authorized,
executed, valid, binding and enforceable obligations of the Qualified
Issuer;
(d) Except as disclosed to the Guarantor, no claim or litigation is
pending or threatened which would materially adversely affect the
Qualified Issuer's ability to consummate the transactions contemplated
by the Agreement to Guarantee, the Bond, or the Bond Loan;
(e) The consummation of the transactions contemplated by the
Agreement to Guarantee, the Bond, and the Bond Loan will not conflict
with or constitute an event of default under any law or agreement to
which the Qualified Issuer is subject;
(f) No authorization, approval or consent of a governmental
authority is necessary on the part of the Qualified Issuer to
consummate the transactions contemplated by the Bond or the Bond Loan
which has not been obtained;
(g) No funds from any other CDFI Fund program are being used to pay
principal, interest, fees, administrative costs, or issuance costs
(including Bond Issuance Fees) related to the CDFI Bond Guarantee
Program, or to fund the Risk-Share Pool; and
(h) Any other representation or warranty deemed appropriate by the
Guarantor, the CDFI Fund or the Bond Purchaser.
Sec. 1808.608 Representations and warranties of Eligible CDFI with
respect to each Bond Loan.
The Eligible CDFI shall represent and warrant to the Qualified
Issuer, at the execution of each set of Bond Loan documents and,
thereafter, until repayment in full of such Bond Loan, the following:
(a) The performance by the Eligible CDFI under the Bond Loan
documents is duly authorized, does not require consent or approval of
any governmental authority not already obtained, does not constitute a
default of any law or agreement to which the Eligible CDFI is subject,
will not result in the imposition of any lien (other than pursuant to
the Bond Loan), and constitutes a valid, binding and enforceable
obligation of the Eligible CDFI;
(b) The information provided by the Eligible CDFI fairly represents
the financial position (in conformity with generally accepted
accounting principles), experience and capacity of the Eligible CDFI,
and there have been no material adverse changes in the Eligible CDFI's
financial condition since the date of such financial information;
(c) No claim or litigation is pending or threatened which would
materially adversely affect the Eligible CDFI's ability to consummate
the transactions contemplated by the Bond Loan, or repay the Bond Loan;
(d) No event of default or other material event which could become
an event of default has occurred and is continuing;
(e) The Eligible CDFI has filed all Federal, State and local tax
returns required and paid all liabilities in connection therewith;
(f) The Eligible CDFI has good and marketable title to the
collateral;
(g) The Bond Loan will be applied to Eligible Purposes;
(h) The information provided in the Guarantee Application is true
and accurate;
(i) No default, event of default or due and unsatisfied liability
has occurred and is continuing with respect to any obligations of the
Eligible CDFI to the Guarantor, the CDFI Fund, the Bond Purchaser, the
U. S. Internal Revenue Service, or any other agency, authority or
instrumentality of the Federal Government;
(j) No funds from any other CDFI Fund program are being used to pay
principal, interest, fees, administrative costs, or issuance costs
(including Bond Issuance Fees) related to the CDFI Bond Guarantee
Program, or to fund the Risk-Share Pool; and
(k) Any other representations and warranties set forth in the Bond
Loan documents.
Sec. 1808.609 Representations and warranties of Secondary Borrower.
Each Secondary Borrower shall make identical representations and
warranties as the Eligible CDFI and shall make specific representations
and warranties with respect to the collateral and the project that is
proposed to be financed by the Secondary Loan, upon which the Eligible
CDFI, the Qualified Issuer, the Bondholder, the Guarantor, and the CDFI
Fund may rely. These representation and warranties shall be to the
satisfaction of the Guarantor and the CDFI Fund.
Sec. 1808.610 Covenants of Qualified Issuer with respect to
Guarantee.
The Qualified Issuer shall covenant in the Agreement to Guarantee
that it will:
(a) Furnish to the CDFI Fund, at the Qualified Issuer's expense,
all annual and periodic financial reporting as described in Sec.
1808.619 of this part;
(b) Maintain books and records related to each Bond Loan, the
collateral and the project that is to be financed by Bond Proceeds, and
allow inspection thereof;
(c) Preserve its corporate existence and Certified CDFI status, if
applicable;
(d) Comply with all laws to which it is subject;
(e) Maintain its solvency;
(f) To the extent it assigns any of its obligations under the
agreement to an Affiliate, guarantee performance of such obligations;
(g) Allow audits and investigations by the CDFI Fund, the Treasury
Inspector General, the Comptroller General, or such other Federal
Government offices as may be designated by the Guarantor or the CDFI
Fund;
(h) Provide such reports as required in Sec. 1808.619 of this
part;
(i) Make, execute and deliver such instruments as the Guarantor or
the CDFI Fund may reasonably request;
(j) Sign and certify as true and correct all Bond Documents and
Bond Loan documents;
(k) Not amend or modify any agreement related to the Bond without
the consent of the Bondholder, the Guarantor, or the CDFI Fund, as
applicable;
(l) Comply with the terms and conditions of the Agreement to
Guarantee, the Bond Trust Indenture, and the Bond and Bond Loan
documents;
(m) Immediately notify the Guarantor and the CDFI Fund of any
material change or event that affects any representation, warranty or
covenant of the Guarantee, Bond or Bond Loan documents;
(n) Pay and discharge all Federal, State and local taxes;
and
(o) Comply with all other covenants set forth in the Bond Documents
and Bond Loan documents.
Sec. 1808.611 Covenants of Eligible CDFI with respect to Bond and
each Bond Loan.
The Eligible CDFI shall covenant in the Bond Loan agreement that it
will:
(a) Furnish to the Qualified Issuer, at the Eligible CDFI's
expense, certain annual and periodic financial and performance
reporting;
(b) Maintain books and records related to the Bond Loan and
Secondary Loans, the collateral and the project that is to be financed
by Bond Loan proceeds, and allow inspection thereof;
(c) Preserve its corporate existence and Certified CDFI status;
[[Page 8325]]
(d) Comply with all laws to which it is subject;
(e) Maintain insurance, as required by the Qualified Issuer,
against such risks as would customarily be maintained by commercially
reasonable companies in a similar line of business;
(f) Pay and discharge all Federal, State and local taxes;
(g) Ensure proper use of proceeds of the Bond Loan;
(h) Pay all required administrative expenses;
(i) Indemnify the Guarantor, the CDFI Fund, the Qualified Issuer
and the Master Servicer/Trustee and their Affiliates;
(j) Collaterally assign all rights, title, and interest in and to
Secondary Loan collateral to the Master Servicer/Trustee;
(k) Maintain the collateral;
(l) Enforce the covenants against the Secondary Borrowers;
(m) Be bound, to the extent applicable, to provisions of the Bond
Trust Indenture;
(n) Periodically, as directed by the CDFI Fund, furnish certain
information designed to measure the impacts of the Bond Loan and the
CDFI Bond Guarantee Program;
(o) Periodically, as directed by the CDFI Fund, furnish to the
Qualified Issuer and/or the CDFI Fund updates to the Capital
Distribution Plan; and
(p) Comply with all other representations and warranties set forth
in the Bond Loan documents.
Sec. 1808.612 Specific financial covenants of Eligible CDFI.
The Eligible CDFI shall covenant in Bond Loan documents that it
will comply with specific financial requirements as required by the
Guarantor and the CDFI Fund. Such financial requirements will be
determined based upon the quantity and the character of the existing
loan facilities of the Eligible CDFI, among other factors. The specific
financial covenants may include, but are not limited to, one or more of
the following measures: consolidated net asset ratio; consolidated
unrestricted net asset ratio; and minimum available liquidity (or, in
the case of Eligible CDFIs that are regulated financial institutions,
such ratios and information as may be required by the applicable
Appropriate Federal Banking Agency or Appropriate State Agency). The
specific financial requirements shall be measured based upon such
Eligible CDFI's financial statements prepared in accordance with
generally accepted accounting principles and consistent with
historically applied accounting policies and practices.
Sec. 1808.613 Negative covenants of Eligible CDFI.
The Eligible CDFI will covenant in Bond Loan documents that it will
comply with certain negative covenants, as required by the CDFI Fund
including, but not limited to, that it will:
(a) Not incur or issue additional long-term or short-term debt to
the extent that the incurrence of such additional debt would violate
the specific financial covenants of such Eligible CDFI under the Bond
Loan; and
(b) Not permit liens on all or any part of the Bond Loan
collateral, except as permitted pursuant to the Bond Loan documents,
and only then to the extent consistent with the applicable laws and
regulations governing the Bond Loan and as approved by the CDFI Fund.
Sec. 1808.614 Covenants of Secondary Borrower with respect to
Secondary Loan.
In addition to making specific representations and warranties with
respect to the collateral and the project being financed by the
Secondary Loan proceeds, each Secondary Borrower shall covenant in the
Secondary Loan agreement that it will:
(a) Periodically, as directed by the Eligible CDFI, furnish to the
Eligible CDFI certain annual and periodic financial and performance
reporting;
(b) Maintain books and records related to the Secondary Loan, the
collateral and the project that is to be financed by Bond Loan
proceeds, and allow inspection thereof;
(c) Preserve its corporate existence, as applicable;
(d) Comply with all laws to which it is subject;
(e) Maintain insurance, as directed by the Eligible CDFI, against
such risks as would customarily be maintained by commercially
reasonable companies in a similar line of business;
(f) Pay and discharge all Federal, State and local taxes;
(g) Ensure proper use of proceeds of the Secondary Loan;
(h) Maintain the collateral;
(i) Periodically, as directed by the Eligible CDFI, furnish to the
Eligible CDFI certain information designed to measure the impacts of
the Bond Loan and the CDFI Bond Guarantee Program;
and
(j) Comply with all other representations and warranties set forth
in the Secondary Loan documents.
Sec. 1808.615 Negative covenants of Secondary Borrower.
Any additional debt of the Secondary Borrower shall be in
accordance with the requirements set forth in the applicable Secondary
Loan Requirements and the Secondary Loan agreement, and may include,
but shall not be limited to, that:
(a) The Secondary Borrower will not incur or issue additional long-
term or short-term debt payable from and having a lien on all or a
portion of the Secondary Loan collateral that is
(1) Equally and ratably secured; or
(2) Superior or senior to the lien thereon of the Secondary Loan as
more specifically set forth in the Secondary Loan agreement; and
(b) So long as no event of default has occurred and is continuing,
the Secondary Borrower may, subject to the approval of the Eligible
CDFI, incur or issue at any time additional debt payable from and
having a lien on all or a portion of the Secondary Loan collateral that
is subordinate or junior to the lien thereon of the Secondary Loan and
enter into subordinate credit facility agreements, provided that no
events of default have occurred and are continuing under the Secondary
Loan documents or any parity senior loan documents and that such debt
meets the requirements set forth in paragraph (a) of this section.
Sec. 1808.616 Events of default and remedies with respect to Bonds.
(a) Events of default. An event of default with respect to any Bond
shall include, but not be limited to:
(1) Nonpayment of interest or the Agency Administrative Fee when
due and payable;
(2) Nonpayment of principal or prepayment price when due and
payable;
(3) The use of Bond Proceeds for any purpose other than an Eligible
Purpose; and
(4) Any other events of default set forth in the Bond or the Bond
Trust Indenture.
(b) Default of other Bonds. An event of default under one Bond
shall not constitute an event of default under another Bond.
(c) Remedies. Pursuant to the Agreement to Guarantee and the Bond
Trust Indenture, remedies upon an event of default shall include, but
not be limited to, the following:
(1) Declaring the entire amount of unpaid principal and interest on
the applicable Bond immediately due and payable; and
(2) Exercising all remedies available under the applicable
Agreement to Guarantee and the Bond Trust Indenture.
(d) Notice and comment. Prior to imposing any remedies pursuant to
this section or the Agreement to Guarantee, the Guarantor shall, to the
maximum
[[Page 8326]]
extent practicable, provide the Qualified Issuer with written notice of
the proposed sanction and an opportunity to comment. Nothing in this
section, however, shall provide a Qualified Issuer the right to any
formal or informal hearing or comparable proceeding not otherwise
required by law.
Sec. 1808.617 Events of default and remedies with respect to Bond
Loans.
(a) Events of default. The following shall constitute an event of
default with respect to each Bond Loan:
(1) Nonpayment of interest when due and payable;
(2) Nonpayment of principal or prepayment price when due and
payable;
(3) Failure of the Eligible CDFI to perform any condition or
covenant under any Bond Loan document;
(4) Any representation or warranty of the Eligible CDFI made in
connection with the Guarantee Application or the Bond Loan is false or
incorrect in any material respect;
(5) Principal or interest on any indebtedness of the Eligible CDFI
or any subsidiary of the Eligible CDFI in excess of $100,000 is not
paid when due (subject to a cure period);
(6) The holder of any junior or parity lien on collateral
institutes a proceeding to enforce a lien on the collateral;
(7) The Eligible CDFI files bankruptcy or consents to the
appointment of a receiver or trustee for itself or the collateral;
(8) Any money judgment is filed against the Eligible CDFI and
remains unvacated for a period of 60 days from filing;
(9) The use of Bond Loan proceeds for any purpose other than an
Eligible Purpose; or
(10) Any other events of default set forth in the Bond Loan
documents.
(b) Remedies. Remedies of the Qualified Issuer upon an event of
default include, but are not limited to, the following:
(1) Declaring the entire amount of unpaid principal and interest on
the applicable Bond Loan immediately due and payable;
(2) Applying for appointment of a receiver or trustee for the
collateral;
(3) At the direction of the Guarantor, terminating the Bond Loan
agreement, declaring the entire amount of unpaid principal and interest
on the applicable Bond Loan immediately due and payable; and
(4) Exercising all remedies available under the applicable Bond
Loan agreement, including declaring the Bond Loan Payment Default Rate
in effect.
(c) Enforcement rights. The Guarantor reserves all rights to
enforce remedies upon an event of default.
Sec. 1808.618 Events of default and remedies with respect to
Secondary Loans.
(a) Events of default. The following shall constitute an event of
default with respect to each Secondary Loan:
(1) Nonpayment of interest when due and payable;
(2) Nonpayment of principal when due and payable;
(3) Failure of the Secondary Borrower to perform any condition or
covenant under any Secondary Loan document;
(4) Any representation or warranty of the Secondary Borrower made
in connection with the Secondary Loan application or the Secondary Loan
documents is false or incorrect in any material respect;
(5) Principal or interest on any indebtedness of the Secondary
Borrower or any subsidiary of the Secondary Borrower in excess of
$100,000 is not paid when due (subject to a cure period);
(6) The holder of any junior or parity lien on collateral
institutes a proceeding to enforce a lien on the collateral;
(7) The Secondary Borrower files bankruptcy or consents to the
appointment of a receiver or trustee for itself or the collateral;
(8) Any money judgment is filed against the Secondary Borrower and
remains unvacated for a period of 60 days from filing; or
(9) Any other events of default set forth in the Secondary Loan
documents.
(b) Remedies. The Qualified Issuer and the Guarantor will reserve
certain rights to enforce (or direct enforcement of) remedies upon an
event of default under the Secondary Loan documents.
Sec. 1808.619 Reporting requirements.
The Bond Documents and Bond Loan documents shall specify such
monitoring and financial reporting requirements as deemed appropriate
by the CDFI Fund including, but not limited to the following:
(a) Data--General. As long as the Bonds remain outstanding, a
Qualified Issuer shall provide such reports and shall maintain such
records as may be prescribed by the CDFI Fund that are necessary to:
(1) Disclose the manner in which Bond Proceeds are used, including
providing documentation to demonstrate proceeds of the Bond Loans were
used for Eligible Purposes;
(2) Demonstrate compliance with the requirements of this part and
the Bond Documents;
(3) Evaluate the impact of the CDFI Bond Guarantee Program;
(4) Ensure the Qualified Issuer meets the performance standards
over the life of the facilities; and
(5) Accomplish such other purposes that the CDFI Fund may deem
appropriate.
(b) Customer profiles. The Qualified Issuer shall require each
Eligible CDFI to compile such data on the gender, race, ethnicity,
national origin, or other information on individuals and entities that
utilize its products and services as the CDFI Fund shall prescribe and
as is permissible under applicable law. In general, such data will be
used to determine whether residents of Investment Area(s) or members of
Targeted Population(s) are adequately served and to evaluate the impact
of the CDFI Bond Guarantee Program.
(c) Audits; Access to records. (1) The CDFI Fund may, if it deems
appropriate, audit Qualified Issuers, Eligible CDFIs, Program
Administrators, Servicers, and/or the Master Servicer/Trustee, or
provide for or require an audit, at least annually. Portfolio
management and loan monitoring will also employ risk-based, on-site
verification of the Eligible CDFI's lending activities to Secondary
Borrowers and compliance with the terms in Secondary Lending
Requirements.
(2) Qualified Issuers, Eligible CDFIs, Program Administrators,
Servicers, the Master Servicer/Trustee, as applicable, must submit such
financial and activity reports, records, statements, and documents at
such times, in such forms, and accompanied by such reporting data, as
required by the CDFI Fund to ensure compliance with the requirements of
this interim rule and to evaluate the impact of the CDFI Bond Guarantee
Program.
(3) The Federal Government, including the U.S. Department of the
Treasury, the Comptroller General, and their duly authorized
representatives, shall have full and free access to such entities'
offices and facilities and all books, documents, records, and financial
statements relating to the Guarantee and may copy such documents as
they deem appropriate
(4) The CDFI Fund, if it deems appropriate, may prescribe audit and
access to record requirements for Eligible CDFIs and Secondary
Borrowers.
(d) Retention of records. Qualified Issuers, Eligible CDFIs,
Program Administrators, the Master Servicer/Trustee, and Servicers
shall comply with all record retention requirements as set forth in OMB
Circular A-110 (as applicable).
(e) Data collection and reporting. Qualified Issuers, Eligible
CDFIs, the
[[Page 8327]]
Program Administrator, the Master Servicer/Trustee, and Servicers, as
applicable, shall submit to the CDFI Fund, monthly, quarterly, and
annually, as specified in the Bond Documents, and as long as the Bond
shall remain outstanding, such information and documentation that will
permit the CDFI Fund to review compliance with the Capital Distribution
Plan and the terms and conditions of the Bond Documents, and to perform
adequate portfolio management and loan monitoring. The information and
documentation may include, but not be limited to, the following:
(1) Financial statements, including but not limited to:
(i) Annual financial statements for the Qualified Issuer and each
Eligible CDFI that have been audited in conformity with generally
accepted auditing principles; and
(ii) With respect to any nonprofit Qualified Issuer and any
Eligible CDFI that is required to have its financial statements audited
pursuant to OMB Circular A-133 Audits of States, Local Governments and
Non-Profit Organizations, annual A-133 audited financial statements.
Non-profit Qualified Issuers and Eligible CDFIs that are not required
to have financial statements audited pursuant to OMB Circular A-133
must submit to the CDFI Fund a statement signed by the Qualified Issuer
or Eligible CDFI's authorized representative or certified public
accountant, asserting that a single audit pursuant OMB Circular A-133
is not required;
(2) Pro forma projection of the Qualified Issuer's and Eligible
CDFI's respective balance sheet, income statement, and statement of
cash flows over the ensuing five years, or such other time period as
specified by the CDFI Fund;
(3) Such institution-level and transaction-level reports as may be
required by the CDFI Fund;
(4) Information necessary to measure the financial condition of the
Eligible CDFI. This includes, but is not limited to, measuring solvency
by collecting data on fixed charge coverage, capital adequacy, debt
coverage, and measuring liquidity by collecting data on core financial
ratios, including current ratios, quick ratios, working capital, and
operating liquidity ratio. This will also include credit reporting,
financial statement analysis, trend analysis of financial conditions,
market valuation, loan performance (30/60/90 payment history) of Bond
Loans and Secondary Loans, valuation and eligibility of Secondary Loan
collateral, and management and organization changes;
(5) Information necessary to assess Program impact performance and
outcome measures, including information necessary to evaluate the
credit-worthiness of loan applicants; and
(6) Other such information and reports as may be requested by the
CDFI Fund.
(f) Qualified Issuer reports. Qualified Issuers are responsible for
the timely and complete submission of all required information and
reports, even if all or a portion of the documents actually are
completed by the Eligible CDFI. The CDFI Fund reserves the right to
contact the Qualified Issuer or Eligible CDFI and require that
additional information and documentation be provided.
(g) Regulator information. The CDFI Fund's review of a regulated
Qualified Issuer's or regulated Eligible CDFI's performance or
compliance with the Bond Documents may also include information
provided by the Appropriate Federal Banking Agency or Appropriate State
Agency, as the case may be.
(h) Public inspection. The CDFI Fund shall make reports described
in this section available for public inspection after deleting any
materials necessary to protect privacy or proprietary interests
pursuant to all applicable laws and regulations.
(i) Availability of referenced publications. The publications
referenced in this section are available as follows:
(1) OMB Circulars may be obtained from the Office of
Administration, Publications Office, 725 17th Street NW., Room 2200,
New Executive Office Building, Washington, DC 20503 or on the Internet
(https://www.whitehouse.gov/omb/grants_circulars/); and
(2) Government Accountability Office materials may be obtained from
GAO Distribution, 700 4th Street NW., Suite 1100, Washington, DC 20548.
Sec. 1808.620 Investments in Guaranteed Bonds ineligible for
Community Reinvestment Act Purposes.
Notwithstanding any other provision of law, any investment by a
financial institution in Bonds shall not be taken into account in
assessing the record of such institution for purposes of the Community
Reinvestment Act of 1977 (12 U.S.C. 2901). Other forms of participation
by financial institutions in CDFI Bond Guarantee Program transactions
may be eligible for inclusion in Community Reinvestment Act records to
the extent permitted by the Appropriate Federal Banking Agency.
Sec. 1808.621 Conflict of interest requirements.
(a) Provision of Bond Loans or Secondary Loans to Affiliates. (1) A
Qualified Issuer or Eligible CDFI that is not regulated by an
Appropriate Federal Banking Agency or Appropriate State Agency may not
use any Bond Proceeds or Bond Loan proceeds to make any Bond Loans or
Secondary Loans available to an Affiliate unless it meets the following
restrictions:
(i) The loan must be provided pursuant to standard underwriting
procedures, terms and conditions;
(ii) The Affiliate receiving the loan shall not participate in any
way in the decision-making regarding such loan;
(iii) The board of directors or other governing body of the lender
shall approve the extension of the loan; and
(iv) The loan must be provided in accordance with a policy
regarding credit to Affiliates that has been approved in advance by the
CDFI Fund.
(2) A Qualified Issuer or Eligible CDFI that is an Insured CDFI, a
Depository Institution Holding Company or a State-Insured Credit Union
(as such terms are defined in 12 CFR 1805.104) shall comply with the
restrictions on insider activities and any comparable restrictions
established by its Appropriate Federal Banking Agency or Appropriate
State Agency, as applicable.
(b) Standards of conduct. Qualified Issuers, Eligible CDFIs,
Program Administrators, the Master Servicer, and Servicers shall
maintain a code or standards of conduct acceptable to the CDFI Fund
that govern the performance of employees engaged in the awarding and
administration of any loan. No employee of a Qualified Issuer, Eligible
CDFI, Program Administrators, the Master Servicer, and Servicer shall
solicit or accept gratuities, favors or anything of monetary value from
any actual or potential borrowers for such loans. Such policies shall
provide for disciplinary actions to be applied for violation of the
standards by employees.
Sec. 1808.622 Compliance with government requirements.
In carrying out its responsibilities pursuant to any agreements
associated with the CDFI Bond Guarantee Program, all Qualified Issuers,
Eligible CDFIs, Program Administrators, Servicers, and the Master
Servicer/Trustee shall comply with all applicable Federal, State, and
local laws, regulations, and ordinances, OMB Circulars, and Executive
Orders, including restrictions on lending to entities with delinquent
Federal debt.
[[Page 8328]]
Sec. 1808.623 Lobbying restrictions.
No fees or funds made available under this part may be expended by
a party to pay any person to influence or attempt to influence any
agency, elected official, officer or employee of a State or local
government in connection with the making, award, extension,
continuation, renewal, amendment, or modification of any State or local
government contract, grant, loan or cooperative agreement as such terms
are defined in 31 U.S.C. 1352.
Sec. 1808.624 Criminal provisions.
The criminal provisions of 18 U.S.C. 657 regarding embezzlement or
misappropriation of funds are applicable to all CDFI Bond Guarantee
Program participants and insiders.
Sec. 1808.625 CDFI Fund deemed not to control.
The CDFI Fund shall not be deemed to control a CDFI Bond Guarantee
Program participant by reason of any Guarantee provided under the Act
for the purpose of any applicable law.
Sec. 1808.626 Limitation on liability.
The liability of the Federal Government arising out of any fees or
funds obtained by a CDFI Bond Guarantee Program participant in
accordance with this interim rule shall be limited to the amount of the
fees or funds obtained by the CDFI Bond Guarantee Program participant.
The Federal Government shall be exempt from any assessments and other
liabilities that may be imposed on controlling or principal
shareholders by any Federal law or the law of any State. Nothing in
this section shall affect the application of any Federal tax law.
Sec. 1808.627 Fraud, waste and abuse.
Any person who becomes aware of the existence or apparent existence
of fraud, waste or abuse of any Guarantee, Bond, Bond Loan or Secondary
Loan provided under this interim rule must report such incidents to the
Office of Inspector General of the U.S. Department of the Treasury.
Dated: January 24, 2013.
Donna J. Gambrell,
Director, Community Development Financial Institutions Fund.
[FR Doc. 2013-02055 Filed 2-1-13; 8:45 am]
BILLING CODE 4810-70-P
