Capital Magnet Fund (CMF), 43414-43416 [2023-14407]

Agencies

• Community Development Financial Institutions Fund
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 88, Number 129 (Friday, July 7, 2023)]
[Notices]
[Pages 43414-43416]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-14407]


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DEPARTMENT OF THE TREASURY

Community Development Financial Institutions Fund


Capital Magnet Fund (CMF)

ACTION: Notice and request for information.

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SUMMARY: The Community Development Financial Institutions Fund (CDFI 
Fund), Department of the Treasury requests comments from the public 
regarding methods by which it can enhance and improve the impact of the 
Capital Magnet Fund; streamline or minimize the administrative burden 
on Capital Magnet Fund applicants and award recipients; as well as 
safeguard public funds. Information provided in response to this 
Request will allow the CDFI Fund to consider the development of 
policies and programs that better support and expand Capital Magnet 
Fund activities to spur investment in affordable housing and related 
economic development efforts that serve low-income families and 
communities.

DATES: Written comments must be received on or before September 5, 
2023.

ADDRESSES: You may submit comments via the Federal eRulemaking Portal: 
www.regulations.gov. Follow the instructions on the website for 
submitting comments. In general, all comments will be available for 
inspection at www.regulations.gov. Comments, including attachments and 
other supporting materials, are part of the public record. Do not 
submit any information in your comments or supporting materials that 
you consider confidential or inappropriate for public disclosure.
    For further information, contact Andrew Schlack, Program Manager, 
Capital Magnet Fund, CDFI Fund, 1500 Pennsylvania Avenue NW, 
Washington, DC 20220, or by email at [email protected], and include 
``CMF RFI'' in the subject line of the email. Other information 
regarding the CDFI Fund and its programs may be obtained through the 
CDFI Fund website at www.cdfifund.gov.

    Note: Capitalized terms not defined in this Notice are defined 
in the CMF Interim Rule (as amended February 8, 2016; 12 CFR part 
1807).\1\

    \1\ https://www.cdfifund.gov/sites/cdfi/files/documents/interim-rule-fr-2016-02132.pdf.

SUPPLEMENTARY INFORMATION: 

I. Background

    The Capital Magnet Fund (CMF) was established through the Housing 
and Economic Recovery Act of 2008 (HERA), Public Law 110-289, section 
1131. Per the statute, the allocations to the Capital Magnet Fund are 
to be used to carry out a competitive grant program administered by the 
CDFI Fund.
    HERA requires Fannie Mae and Freddie Mac to set aside an amount 
equal to 4.2 basis points for each dollar of their unpaid principal 
balances of total new business purchases to be allocated to the Housing 
Trust Fund (administered by the Department of Housing and Urban 
Development) and the Capital Magnet Fund.
    Through CMF, the CDFI Fund is authorized to make grants to 
Certified Community Development Financial Institutions (CDFIs) and 
Nonprofit Organizations (if one of their principal purposes is the 
development or management of affordable housing). CMF Awards must be 
used to attract private financing for and increase investment in: (1) 
the Development, Preservation, Rehabilitation, and Purchase of 
Affordable Housing for primarily Extremely Low-, Very Low-, and Low-
Income Families; and (2) Economic Development Activities which, In 
Conjunction with Affordable Housing Activities, will implement a 
Concerted Strategy to stabilize or revitalize a Low-Income or 
Underserved Rural Area.

II. Purpose of This Request for Information

    The purpose of this Request for Information (RFI) is to solicit 
public input related to CMF. Specifically, the goals of this RFI are: 
(1) to clarify terms, concepts, and requirements of the CMF program to 
improve CMF Recipients' understanding of their obligations and 
requirements under the program; (2) to ensure the CMF Program 
requirements adequately address activities and current business 
practices in the affordable housing industry; (3) to identify 
opportunities to reduce the burden of administering CMF Awards for CMF 
Recipients while ensuring accountability; (4) to identify opportunities 
to better align the CMF program with the rules, terms, practices, and 
definitions of other significant federal funding sources for affordable 
housing, as a way to facilitate compatibility and reduce CMF Recipient 
burden; and (5) to determine how the CMF Program can better promote and 
incorporate policy priorities such as economic development in 
conjunction with affordable housing and affordable homeownership.

III. Specific Information Requested

    A. Facilitate CMF Alignment with Other Federal Affordable Housing 
Programs: With respect to the financing of affordable housing, CMF is 
often an integral part of project financing (the capital stack), along 
with capital generated or received through other federal programs. To 
help reduce Recipient reporting burden and to ease the administration 
of CMF Awards, the CDFI Fund is soliciting public input on areas where 
CMF can better align with other federal programs.
    1. Using CMF with other federal programs in the same project(s): 
The CDFI Fund is considering an approach where certain CMF Affordable 
Housing projects (funded under designated federal housing programs and 
subject to certain rules and restrictions similar to those under the 
CMF Program) could be categorically presumed as eligible Affordable 
Housing Activities and be deemed as meeting CMF rules and requirements 
for Affordable Housing. For example, under this approach, projects 
funded with both CMF and the Low-Income Housing Tax Credit (LIHTC), and 
meeting all LIHTC requirements, could be assumed to meet all CMF 
requirements such as affordability or rent requirements.
    (a) Should the CDFI Fund consider this approach as a way to align 
the CMF program with other significant federal affordable housing 
programs?
    (b) What are the potential benefits and concerns in utilizing this 
approach for CMF?
    (c) What federal programs are sources of capital frequently used in 
conjunction with CMF that should be considered if this approach were to 
be adopted, particularly those related to rental, homeownership, and/or 
rural housing?

[[Page 43415]]

    (d) What, if any, affordability, and property standards 
requirements currently in place for the CMF program would not be 
covered by using this approach, and should they be retained?
    2. CMF income limit definitions: The definitions of Low-Income, 
Very Low-Income, or Extremely Low-Income in the CMF Interim Rule differ 
from some other federal housing programs.
    (a) Are such differences impactful to the financing or management 
of CMF projects, and if so, how?
    (b) Should the CDFI Fund change the definition of income groups to 
better align with other federal housing programs? If so, how should the 
CDFI Fund define income limits? Which definitions of income groups 
should be changed, and which programs should the CMF program align 
with?
    3. CMF income certification for LIHTC projects: HERA addresses and 
provides guidance regarding the requirement for annual recertification 
of tenant incomes for properties financed under the LIHTC Program. 
Under this guidance, properties that are 100% low-income rent-
restricted are no longer required to undertake ongoing recertification. 
See Housing and Economic Recovery Act of 2008, Public Law 110-289 (7/
30/2008), 122 Stat. 2888, section 3010(a) (2007-2008)(codified at 
Public Law 110-289, 122 Stat. 2654 (2008)). The CMF Interim Rule at 12 
CFR 1807.401(f) requires annual re-examination of tenant income.
    (a) Would adopting a similar approach as outlined in IRC sec. 
142(d)(3)(A) with respect to LIHTC income determinations result in a 
meaningful impact on the administration of the CMF program?
    (b) If so, how can this approach be balanced against the possible 
risk of leasing a unit to a non-qualified Family and noncompliance with 
tenant income determination requirements (12 CFR 1807.401(f)) and over-
income tenants (12 CFR 1807(g))?
    B. CMF Commitment Deadline: Section 1339(c) of HERA stipulates that 
grants under the program must be Committed for use within two years 
after the allocation of the Award. As a way to ensure that funds are 
used in a timely manner, the CMF Interim Rule applies a two-year 
commitment of any Award to specific projects and further specifies that 
the commitment must be made in a written, legally binding agreement. 
The CDFI Fund is requesting input on alternate approaches.
    One possible approach may be that the commitment deadline would be 
satisfied if, within two years, a Recipient committed the Award to one 
of the six Eligible Activities (i.e., capitalize a Loan Loss Reserve, 
Revolving Loan Fund, Affordable Housing Fund or a fund for Economic 
Development Activities; or make Risk-Sharing Loans; or provide Loan 
Guarantees), coupled with a new requirement that a commitment to a 
specific project must be made within three years after the Effective 
Date of the Assistance Agreement.
    1. What are some of the difficulties, if any, of meeting the 
current two-year commitment deadline under the CMF Interim Rule and why 
are they difficult?
    2. In what way(s) would the proposed two-step approach make it 
easier for CMF Recipients to meet the Commitment Deadline?
    3. What are some concerns or issues with this two-step approach?
    4. Are there other alternative approaches to commitment that would 
satisfy the statutory two-year commitment deadline?
    C. CMF Leverage Requirements and Calculation Rules: Leveraging the 
CMF Award to attract private and other public capital is an important 
component of the program. At a minimum, the CMF statute under HERA 
requires that the Award be leveraged ten times. There are three types 
of leverage under CMF: (a) Enterprise-Level, (b) Project-Level, and (c) 
Reinvestment-Level. CMF defines (a) Enterprise-Level as capital earned, 
borrowed, or raised by the Recipient or its Affiliates, which is 
designated for use and ultimately used to pay for Leveraged Costs but 
is not initially restricted for use for specific properties at the time 
it is earned, borrowed or raised; (b) Project-Level as capital used to 
pay Leveraged Costs that is restricted to a specific project when it is 
raised; and (c) Reinvestment-Level as the reallocation of repaid CMF 
Award and/or Enterprise-Level Capital into new eligible activities 
within the established Investment Period.
    1. Should Reinvestment-Level leverage, which measures the 
reinvestment of both a CMF Award and Enterprise-Level leverage, be 
removed and only Enterprise-Level leverage and Project-Level leverage 
be considered to simplify the calculation of Leveraged Costs? Please 
explain the rationale for your answer.
    2. If the Reinvestment-Level leverage is retained, should the 
calculation be changed to a multiplier and based only on the Award 
amount (i.e., number of times the Award amount is repaid and reinvested 
in excess of the original Award amount), rather than a calculation of 
the reinvestment of a combination of the Program Income from the Award 
plus new Enterprise-Level leverage? Please explain the rationale for 
your answer.
    3. What are some concerns or issues with either of these approaches 
discussed in items 1 and 2 above?
    4. Are there any other ways the CDFI Fund might consider 
simplifying the calculation of how Recipients leverage their CMF Award? 
If yes, please describe.
    D. CMF Program Income (PI) Rules: The nature of CMF as a financing 
program often results in Recipients earning Program Income (PI) from 
the repayment of loans and returns on equity investments. PI generated 
during the first five years of the CMF Award (the Investment Period) 
from the repayment of CMF funds from loans or equity must be reinvested 
under certain requirements specified in the Recipient's Assistance 
Agreement. Note that the questions below refer to the PI earned during 
the Investment Period and not PI earned thereafter, which is treated 
differently per the Assistance Agreement.
    1. Currently, the Recipient's Assistance Agreement requires that PI 
be expended only on specified eligible activities in the Agreement. 
Should the use of PI earned on the CMF Award be expanded to include all 
CMF eligible activities as outlined at 12 CFR 1807.301? Please explain 
the rationale for your answer.
    2. Should adding eligible activities specific only to PI, and not 
otherwise eligible under the program, be allowed? If yes, what 
additional eligible activities should be contemplated for the use of PI 
and why? If no, please explain the rationale for your answer.
    3. Currently, projects funded with PI must be completed within 36 
months of being Committed. Should the CDFI Fund modify the 36-month 
completion deadline as it relates to the use of PI? If so, what 
deadline if any, should be established? Please explain the rationale 
for your answer.
    4. Should the CDFI Fund modify the requirement that any PI in 
excess of $100,000 be Committed to a project the following year? Please 
explain the rationale for your answer. If yes, what time period or 
threshold amount should be considered and why?
    5. Under the CMF Assistance Agreement, CMF's 10-year affordability 
period applies to projects funded with PI.
    (a) Should the long-term affordability period for projects funded 
with PI be shortened? Please explain the rationale for your answer.
    (b) If yes, what period of time would be reasonable, balancing both 
the goals of increasing affordability and reducing administrative 
burden, and why?

[[Page 43416]]

    E. CMF Clarification of Rules on Loan Loss Reserves and Loan 
Guarantees: Under CMF, Recipients may use their Award to establish Loan 
Loss Reserves or Loan Guarantees. Currently, CMF requirements related 
to Loan Loss Reserves and Loan Guarantees are limited. In order to 
ensure that these uses are properly addressed under the program:
    1. What additional guidance and rules would be useful to Recipients 
and why?
    2. Should there be a requirement for the establishment of escrows 
or restricted accounts for Loan Loss Reserves or Loan Guarantees? 
Please provide the rationale for your answer.
    3. What coverage limits (i.e., percentage of loan covered in the 
event of borrower default) would be considered sound and reasonable and 
why?
    4. What factors should be considered for proper and effective use 
of Loan Loss Reserves or Loan Guarantees and why?
    F. CMF Manufactured Housing Affordability Rules: Under CMF, 
manufactured housing that meets the federal Manufactured Home 
Construction and Safety Standards may be financed. Under the CMF 
Interim Rule at 12 CFR 1807.104, manufactured housing is defined as 
Single-family housing consisting of a combination of the manufactured 
housing and the lot, or a manufactured housing lot. Given the hybrid 
nature of manufactured housing Homeownership--where the unit is 
typically owned by an individual or Family, but the lot it sits on may 
be rented--the CDFI Fund is requesting input as to how best to measure 
the affordability of both the cost of the unit and the rental of the 
manufactured housing lot.
    1. Currently, CMF only measures the cost of buying the manufactured 
housing unit. Should the cost of renting the lot also be considered as 
it relates to affordability? Please provide the rationale for your 
answer.
    2. What are some ways to measure the affordability of both the 
price of the unit and the cost of renting the manufactured housing lot?
    3. What additional guidance and rules would be useful as it relates 
to resident-owned manufactured housing communities?
    4. Are there additional points of clarification related to 
manufactured housing that should be considered? If yes, please describe 
them.
    G. CMF Funding for Assisted Living Facilities: CMF is a flexible 
program that affords Recipients the opportunity to finance a range of 
affordable housing types. As it relates to rental housing, projects are 
subject to a variety of regulatory requirements, including tenant 
income determinations and rent limitations. While affordable assisted 
living projects are eligible uses of the Award under the CMF Interim 
Rule, the hybrid nature of assisted living--where rent generally 
includes both the cost of housing and services--often conflicts with 
the existing CMF limitations and restrictions. For example, the 
combination of the cost of rent and the services that are typical in 
assisted living projects may result in rent levels that do not meet the 
affordability requirements under the CMF regulations.
    1. What challenges currently exist in using CMF Award funding to 
finance and/or develop assisted living facilities?
    2. If there are challenges, describe how CMF Program requirements 
may be modified to better accommodate the development of assisted 
living projects, while ensuring that projects remain targeted and 
affordable to those with incomes that are Low-Income and below? Are 
there other federal or state programs that could provide an example of 
best practices in this area? If yes, please describe them. For example, 
could the cost of housing be separated from the cost of services, to 
accommodate CMF requirements?
    3. What additional guidance and rules related to separating costs 
would be useful?
    4. What is the demand to fund this type of housing with CMF Awards?
    5. Are there additional points of clarification related to funding 
affordable assisted living facilities that should be considered? If 
yes, please describe them.
    H. CMF Affordable Homeownership Purchase Price Limitation Rules: 
The CMF Interim Rule sets the purchase price limitation for a Single-
family home at 95% of the median purchase price for the area, as used 
in the HOME program (12 CFR 1807.402(a)(2)).
    1. Should the CDFI Fund use a different index or indices to set 
purchase price limits for affordable owner-occupied housing? If yes, 
please identify and describe them.
    2. Should utilizing underwriting criteria rather than sales price 
limits be an alternative? Please describe the rationale for your 
answer.
    3. Are there any other specific barriers or limitations that may 
inadvertently discourage organizations from using CMF to support 
Homeownership activities? If yes, please describe them.
    4. What are other changes to the CMF program that could foster 
greater use of CMF to support Homeownership activities?
    I. CMF Economic Development Activities Compliance Requirements: CMF 
allows Recipients to use up to 30% of their Award for Economic 
Development Activities (EDA) in conjunction with Affordable Housing 
Activities (12 CFR 1807.302 (c)). These activities may include the 
development of community facilities, as well as the development/
revitalization of commercial space. Under the current CMF Interim Rule, 
Economic Development Activities, unlike Affordable Housing, do not have 
a specific requirement that the EDA retain its eligible use for a 
minimum period. To ensure accountability, the CDFI Fund is considering 
requiring that EDA financed under a CMF Award maintain its eligible use 
for a minimum period of time.
    1. Should CMF establish a minimum period of time that the EDA 
financed under a CMF Award maintain its eligible use? Please describe 
the rationale for your answer.
    2. If yes, what would be a reasonable period of time, considering 
the Affordability Period for Affordable Housing is 10 years? Please 
describe the rationale for your answer.
    J. Participation of Regulated CDFIs in the CMF Program: Regulated 
CDFIs including banks, credit unions, and cooperatives are eligible to 
apply under CMF. The CDFI Fund is seeking input on how to foster 
greater participation by these regulated financial institutions.
    1. Are there any specific barriers or limitations that may 
inadvertently discourage regulated CDFIs' participation in CMF? If yes, 
please describe them.
    2. What changes to CMF could foster greater participation from 
regulated CDFIs?
    3. Should fostering greater participation from regulated CDFIs be a 
goal of CMF? Please describe the rationale for your answer.
    Authority: 12 CFR 1807; Public Law 110-289.

Marcia Sigal,
Acting Director, Community Development Financial Institutions Fund.
[FR Doc. 2023-14407 Filed 7-6-23; 8:45 am]
BILLING CODE 4810-05-P