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Federal Register: May 15, 2009 (Volume 74, Number 93)

DOCID: fr15my09-16 FR Doc E9-11329

FEDERAL HOUSING FINANCE BOARD

Federal Housing Financing Agency

CFR Citation: 12 CFR Part 925

RIN ID: RIN 2590-AA18

NOTICE: PROPOSED RULES

DOCID: fr15my09-16

DOCUMENT ACTION: Proposed rule.

SUBJECT CATEGORY:

Federal Home Loan Bank Membership for Community Development Financial Institutions

DATES: FHFA will accept written comments on this proposed rule on or before July 14, 2009.

DOCUMENT SUMMARY:

Pursuant to the requirements of the Federal Home Loan Bank Act (Bank Act), as amended by section 1206 of the Housing and Economic Recovery Act of 2008 (HERA), the Federal Housing Finance Agency (FHFA) proposes to amend its membership regulations to authorize nonfederally insured, CDFI Fundcertified community development financial institutions (CDFIs) to become members of a Federal Home Loan Bank (Bank). The newly eligible CDFIs include community development loan funds, venture capital funds and statechartered credit unions without federal insurance. This notice of proposed rulemaking sets out the eligibility and procedural requirements for CDFIs that wish to become members of a Bank.

SUMMARY:

Federal Home Loan Bank Membership for Community Development Financial Institutions

SUPPLEMENTAL INFORMATION

I. Background

A. Statutory and Regulatory Background

Effective July 30, 2008, Division A of HERA, Public Law No. 110 289, 122 Stat. 2654 (2008), titled the Federal Housing Finance Regulatory Reform Act of 2008, created FHFA as an independent agency of the Federal Government. HERA transferred supervisory and oversight responsibilities over the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Federal Home Loan Banks (collectively, Regulated Entities) from the Office of Federal Housing Enterprise Oversight (OFHEO) and the Federal Housing Finance Board (FHFB) to FHFA. The Regulated Entities continue to operate under regulations promulgated by OFHEO and FHFB until such time as the existing regulations are supplanted by regulations promulgated by FHFA.

Each Bank is a cooperative institution that is owned by its members, all of which must comply with certain statutory requirements in order to become members. To be eligible for Bank membership, an applicant must be one of the several types of financial institutions listed in section 4(a)(1) of the Bank Act, must meet certain other eligibility criteria, and must purchase stock of the Bank, as set forth in sections 4 and 6 of the Bank Act. See 12 U.S.C. 1424, 1426. The existing FHFB regulation implementing the membership eligibility and minimum stock purchase provisions of the Bank Act (Membership Regulation) is codified at 12 CFR part 925. The proposed rule would relocate part 925 in its entirety to part 1263, and would amend certain provisions of the existing Membership Regulation to accommodate the addition of CDFIs to the institutions that may become Bank members.

As a threshold matter, in order to be eligible for Bank membership, an applicant must be authorized under federal or state law to become a member of, purchase stock in, do business with, and maintain deposits in, the Bank to which the applicant has applied for membership. Prior to amendment by HERA, section 4(a)(1) provided that any building and loan association, savings and loan association, cooperative bank, homestead association, insurance company, savings bank, or federally insured depository institution (including credit unions) was eligible to become a Bank member. Thus, until HERA was enacted a CDFI could not become a member of a Bank unless it also was a federally insured depository institution, such as a community development bank, thrift or credit union. As of September 30, 2008, 125 such depository institution CDFIs had become members of the Bank System. Section 1206 of HERA amended section 4(a)(1) to make all CDFIs that are certified by the CDFI Fund of the US Department of the Treasury under the Community Development Banking and Financial Institutions Act of 1994 (CDFI Act) eligible to become members of a Bank. See 12 U.S.C. 1424(a)(1) (as amended). Thus, loan funds, venture capital funds and statechartered credit unions without federal deposit insurance are now eligible for Bank membership provided they are certified by the CDFI Fund and have the authority under state law to do those things necessary to become a member, i.e., to buy Bank stock, borrow and pledge collateral. The proposed rule would apply only to those newly eligible institutions. CDFIs that also are eligible for membership because they are federally insured depository
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institutions would continue to follow the existing rules relating to membership for depository institutions.

All institutions that are eligible for membership under section 4(a)(1) also must comply with certain additional criteria specified in section 4(a)(1) and (2) in order to be approved for membership. Specifically, under section 4(a)(1), as amended by HERA, an applicant must demonstrate that it: (a) Is duly organized under state or federal law; (b) either is subject to inspection and regulation under banking or similar laws or is certified as a CDFI under the CDFI Act; and (c) makes such home mortgage loans as are longterm loans. In addition, under section 4(a)(2), an insured depository institution applicant must: (a) Have at least 10 percent of its total assets in residential mortgage loans (unless it qualifies as a ``community financial institution'') \1\; (b) be in sound financial condition such that a Bank may safely make advances to it; (c) have a character of management that is consistent with sound and economical home financing; and (d) have a homefinancing policy that is consistent with sound and economical home financing. 12 U.S.C. 1424(a)(1), (2).
\1\ A ``community financial institution'' is a depository institution that is insured by the Federal Deposit Insurance Corporation and has average total assets of $1 billion or less. 12 U.S.C. 1422(10) (as amended). This proposed rulemaking does not affect the terms under which a ``community financial institution'' may become a member of a Bank.

The existing Membership Regulation expands on those statutory requirements and further establishes a review and approval process for applications for membership in a Bank. See 12 CFR 925.2, 925.3. Any institution seeking membership in a Bank is required to submit an application to the Bank for approval.\2\ The Membership Regulation also includes separate provisions governing the admission of depository institutions and insurance companies, respectively, recognizing that each type of institution operates under a different business model and a different regulatory structure. The proposed rule would follow a similar approach for CDFIs, and would establish separate provisions for CDFI applicants, recognizing that they too operate in a different environment and under a different regulatory structure. The proposed rule would delineate the documentation and other information that a CDFI applicant must submit to a Bank as part of a membership application, as well as the standards that a CDFI applicant must meet in order to be deemed to have satisfied the various statutory and regulatory requirements for membership.\3\
\2\ See 12 CFR 925.2(a). Generally speaking, an institution is eligible to become a member only of the Bank of the district in which its principal place of business is located. An institution is deemed to be located in the state in which it maintains its home office, established as such in conformity with the laws under which the institution is organized. See 12 CFR 925.18.
\3\ Although the proposed rule includes provisions relating to the financial condition of a CDFI applicant, those provisions are threshold requirements for admission to membership. As is the case with respect to all other members, a Bank will typically conduct a more thorough analysis of a CDFI's financial condition and the adequacy of its collateral when determining whether to make advances to such members.

Once a Bank has approved a CDFI for membership, the CDFI must purchase the required amount of Bank stock in order to complete the process of becoming a member of the Bank. See 12 U.S.C. 1426. The specific amount of stock that any new member, including a CDFI, must purchase is set out in each Bank's capital structure plan, and will vary from Bank to Bank.\4\ Typically, an institution must purchase a certain amount of stock in order to become a member, and may be required to purchase additional stock in order to borrow from the Bank or to obtain other services from the Bank. In addition to purchasing stock, any member, including a CDFI, that wishes to borrow from its Bank must pledge certain types of collateral to secure its repayment obligation, and must otherwise demonstrate to the Bank that it is creditworthy. Under the Bank Act, a member may pledge only the following types of collateral for an advance: (a) Fully disbursed, whole first mortgages on improved residential property not more than 90 days delinquent, or securities representing a whole interest in such mortgages; (b) securities issued, insured or guaranteed by the U.S. Government or any agency thereof; (c) cash or deposits of a Bank; (d) other real estaterelated collateral acceptable to the Bank, provided its value is readily ascertainable and the Bank can perfect its interest; and (e) for institutions that qualify as ``community financial institutions,'' secured loans for small business, agriculture or community development activities, or securities representing a whole interest in such secured loans. See 12 U.S.C. 1430(a)(3) (as amended). Each Bank sets its own lending and collateral policies, which may vary from Bank to Bank and which will apply to all borrowing members of that Bank.
\4\ Because the Chicago Bank has not yet implemented its capital structure plan, any CDFI that becomes a member of that Bank must purchase stock in the amount specified by 12 CFR 1263.20 of the proposed rule, which carries over the provisions from 12 CFR 925.20 of the existing rules.

Under the Bank Act and FHFA regulations, all members also must comply with certain community investment and firsttime homebuyer lending standards in order to maintain access to longterm advances. See 12 U.S.C. 1430(g)(2); 12 CFR part 944. As discussed below, FHFA believes that any CDFI that becomes a member of a Bank should be able to satisfy the current community support requirements and therefore is not proposing to establish community support requirements unique to CDFIs, but welcomes comment on whether certain CDFIs may have difficulties in complying with the current requirements that would warrant establishing separate community support standards for CDFIs. B. CDFIs

CDFIs are private nonprofit and forprofit financial institutions providing financial services dedicated to economic development and community revitalization in underserved markets. The CDFIs comprise diverse institutional structures and business lines. The four categories of institutions eligible for CDFI certification and CDFI Fund financial support are: (1) Federally regulated insured depository institutions and holding companies (bank CDFIs); (2) credit unions, whether federally or state chartered; (3) community development loan funds, which are unregulated institutions specializing in financing of housing, businesses or community facilities that provide health care, childcare, educational, cultural or social services; and (4) community development venture capital funds, which are unregulated institutions that provide equity and debtwithequityfeatures to small and medium sized businesses in distressed communities.

The CDFIs serve as intermediary financial institutions that promote economic growth and stability in lowandmoderateincome communities. A large number are notforprofit community development organizations with a long history of providing lending and services to lowand moderateincome communities. They provide a unique range of financial products and services, such as mortgage financing for lowincome and firsttime homebuyers; homeowner or homebuyer counseling; financing for notforprofit affordable housing developers; flexible underwriting and risk capital for needed community facilities; financial literacy training; technical assistance; and commercial loans and investments to assist small startup businesses in lowincome areas. Some CDFIs provide
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community facilities such as child care centers alongside affordable housing.

Frequently, CDFIs serve communities that are underserved by conventional financial institutions and may offer products and services that are not available from conventional financial institutions. Their lending and community support activities are thus consistent with the Banks' housing mission. By stabilizing the communities in a Bank's District, CDFIs can provide added value to that Bank as well as its members.

There is no single source of information covering all CDFIs, but reports from the CDFI Fund and other organizations provide a picture of the industry. A 2007 study by Abt Associates,\5\ which included both certified and uncertified CDFIs, estimated that there were as many as 1,122 CDFIs throughout the country in 2005. The CDFI Fund reported that there were 804 certified CDFIs as of March 1, 2008.\6\ Loan funds, most of which are nonprofit organizations, accounted for 68 percent of the certified CDFIs. Eighteen percent of certified CDFIs were credit unions, 10 percent were banks or holding companies, and 3.5 percent were community venture funds.
\5\ See Abt Associates, Assessment of Community Development Financial Institutions Fund (CDFI) Training Program, Training Program & CDFI Certification, August 17, 2007 (p.2). This estimate is based on a list of CDFIs that either were included in one of the CDFI Fund's databases or had received a CDFI Data Project (CDP) survey in the past three years.
\6\ Community Development Financial Institutions Fund, ``Overview. CDFI Fund Director's presentation before the National Interagency Community Reinvestment Conference.'' San Francisco: Federal Reserve Bank of San Francisco, April 1, 2008.

CDFIs are generally small in asset size. The CDFI Fund reported that the average asset size for certified CDFIs was $32 million for depository institutions and $22.5 million for nondepository institutions.\7\ Despite the typical CDFI's relatively small asset size, studies demonstrate meaningful impact to lowandmoderate income communities by these intermediaries. The CDFIs provide diverse financial services and other benefits to urban, rural and Native communities. A 20032005 trend analysis by the CDFI Fund \8\ reported that its sample of CDFIs financed over 90,000 units of housing, 80,000 of which were affordable housing units. This group of CDFIs also provided financing and counseling for over 12,000 firsttime homebuyers over this period. The Opportunity Finance Network, a trade association of 160 CDFI members, reports that over the past 20 years, its members financed over 533,394 housing units.\9\ Given the credit conditions across the country, demand for CDFI products and services is expected to increase. In a recent survey conducted by the Opportunity Finance Network, CDFI respondents reported an increase in demand for their products as a result of the declining availability of bank credit.\10\ However, one common problem facing nondepository CDFIs is that they do not have access to longterm funding, limiting their ability to provide housing finance to their communities.
\7\ Community Development Financial Institutions Fund, ``Overview.'' Presented April 1, 2008.
\8\ Community Development Financial Institutions Fund, Three Year Trend Analysis of Community Investment Impact System
Institutional Level Report Data FY 20032005. US Department of the Treasury. December 2007. The report includes data for 2003 from 223 CDFIs, for 2004 from 236 CDFIs and for 2005 from 173 CDFIs. \9\ Opportunity Finance Network, Overview: About Opportunity Finance Network. See http://www.opportunityfinance.net/about/ about.aspx. Accessed on December 15, 2008.
\10\ Opportunity Finance Network, Findings from the Third Quarter 2008 CDFI Market Conditions Survey, October 2008.

The CDFI Fund of the U.S. Treasury was created to promote economic revitalization and community development through investment in and financial and technical assistance to CDFIs. See 12 U.S.C. 4701(b). The CDFI Fund promotes these purposes through several programs, including the CDFI Program, the New Markets Tax Credit Program, the Bank Enterprise Award Program and Native Initiatives. See 12 U.S.C. 4701 et seq.; 12 CFR part 1805; http://www.cdfifund.gov.

An institution must apply to the CDFI Fund in order to receive awards under its programs. See 12 U.S.C. 4704; 12 CFR 1805.200. To receive a CDFI award, an institution must be certified by the CDFI Fund as a qualifying CDFI under the CDFI Act. An institution may apply for CDFI certification at any time. If an organization is already certified as a CDFI, the CDFI Fund may require as a condition for receiving an award, that a CDFI submit a Certification of Material Events form attesting that there has been no occurrence that affects the organization's strategic direction, mission or business operation and, thereby, its status as a CDFI. An applicant for CDFI certification must meet each of the following general requirements in order to be certified as a CDFI:
(i) Is a legal entity at the time of certification application; (ii) Has a primary mission of promoting community development; (iii) Is a financing entity;
(iv) Principally serves an economically distressed area, lowincome population, or other population that lacks access to financing (known as an eligible ``target market'');
(v) Provides technical assistance, training or other development services in conjunction with its financing activities;
(vi) Is accountable to its target market through representation on its board or other means; and
(vii) Is a nongovernmental entity that is not controlled by one or more governmental entities (Tribal governments excluded).

See 12 U.S.C. 4702(5); 12 CFR 1805.201.

The CDFI certification eligibility requirements are more fully elaborated in the CDFI program regulations. See 12 CFR 1805.201. The CDFI Fund is not a regulator of CDFIs, and does not evaluate their safety and soundness during either the certification or awards application processes at the level that would be conducted by a financial safety and soundness regulator. The CDFI Fund regulations further state that a CDFI certification does not constitute an opinion by the CDFI Fund as to the financial viability of the certified CDFI or that the CDFI will be selected to receive an award from the CDFI Fund. See 12 CFR 1805.201(a). Thus, receipt of a certification or award alone does not indicate that a CDFI is financially sound, but only that it meets the certification or award eligibility criteria.

C. HERA Section 1201

Section 1201 of HERA requires the FHFA Director to consider the differences between the Banks and the Enterprises in rulemakings that affect the Banks with respect to the Banks' cooperative ownership structure, mission of providing liquidity to members, affordable housing and community development mission, capital structure and joint and several liability. See 12 U.S.C. 4513(f). In preparing the proposed rule, the Director considered these factors and determined that the rule is appropriate, particularly because the proposed amendments would implement statutory provisions of the Bank Act that apply only to the Banks. See 12 U.S.C. 1424(a). Nonetheless, FHFA requests comments about whether these factors should result in a revision of the proposed amendment as it relates to the Banks.
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II. Analysis of Proposed Rule

A. Relocation of Membership Regulation to Part 1263

The proposed rule would relocate the Membership Regulation in its entirety from part 925 of the FHFB regulations to part 1263 of the FHFA regulations. The proposed rule also would amend certain provisions of the relocated Membership Regulation to allow CDFIs to become Bank members. Although those amendments are not evident from the regulatory text of the proposed rule because the provisions are being relocated in their entirety, any material revisions to the regulatory text are discussed in this preamble.

B. Scope of the Proposed Regulation

As noted previously, approximately 125 depository institutions that also are CDFIs have already become members of a Bank by virtue of their status as federally insured depository institutions. Under the terms of this proposed rule, any such institutions that seek to become members of a Bank in the future would be required to follow the existing membership regulations and procedures applicable for insured depository institutions. The amendments embodied in this proposed rule are intended to apply only to those types of CDFIs that were not eligible for membership prior to the passage of HERA, such as loan funds, venture capital funds and credit unions with state or private insurance.

C. Definitions

Consistent with the scope of the proposed regulation, FHFA is proposing to amend the definitions section of the Membership Regulation by revising existing definitions and adding new definitions to reflect the statutory changes related to CDFI members. Thus, section 1263.1 of the proposed rule defines ``community development financial institution'' and ``CDFI'' to include any institution that is certified as a CDFI by the CDFI Fund of the U.S. Department of the Treasury, other than a bank or savings association that is insured under the Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.) or a credit union that is insured under the Federal Credit Union Act (12 U.S.C. 1751 et seq.). Because federally insured depository institutions and credit unions already are eligible for membership under the preHERA law, the definition of CDFI excludes those institutions. The proposal also defines ``CDFI credit union'' as a state chartered credit union that has been certified by the CDFI Fund and does not have federal deposit insurance. The CDFI credit unions are the only types of depository institution that are affected by the HERA CDFI amendments and, for reasons stated below, those entities will be evaluated for financial condition under the same provisions that currently apply to state chartered credit unions that are currently eligible for membership because they are insured by the National Credit Union Administration (NCUA).

The proposed rule also adds or revises several other definitions in order to accommodate the admission of CDFIs to Bank membership. Those defined terms are ``appropriate regulator,'' ``CDFI Fund,'' ``gross revenues,'' ``operating expenses,'' ``restricted assets,'' ``total assets,'' and ``unrestricted cash and cash equivalents.'' The proposal would revise the existing definition of ``appropriate regulator'' to add CDFI credit unions to the list of financial institutions included within the current rule. As noted previously, FHFA is proposing to subject CDFI credit unions to the same financial condition provisions that apply to state chartered credit unions that are insured by the NCUA, and these definitions are consistent with that approach. Most of the other new definitions relate to terms that are used elsewhere in the proposal to measure the financial condition and performance of those CDFIs that are not subject to state or federal regulation. Generally speaking, these financial definitions are intended to reflect the terms used in the financial performance standards employed by the CDFI Fund or by thirdparty auditors experienced in assessing the financial performance of the CDFIs. FHFA requests comments on whether the proposed definitions are appropriate in the context of assessing the financial condition of CDFI applicants.

Apart from those new or revised definitions, the proposed rule carries over into part 1263 all of the existing definitions from the Membership Regulation, some of which include minor clarifying or technical changes.

D. Application Process

Subpart B of the current Membership Regulation includes several provisionsSec. Sec. 925.2 to 925.5relating to the process for the submission and consideration of applications for membership. The proposed rule would relocate all of those provisions without substantive change to proposed Sec. Sec. 1263.2, 1263.3, 1263.4, and 1263.5, respectively. The proposed rule would make minor changes to certain of those provisions, none of which are intended to change the substance of those provisions.

E. Eligibility Requirements

Subpart C of the current Membership Regulation includes 13 provisions relating principally to the eligibility requirements for membership and how they are to be applied to the various types of institutions that may become members of a Bank. Some of these regulatory provisions are readily applicable to CDFIs in the same manner as other financial institutions, but others require some adaptation to reflect the unique characteristics of CDFIs. The proposed rule would amend certain of these provisions to address the statutory changes that have allowed CDFIs to become members. In proposing these amendments, FHFA has sought to develop regulatory standards that recognize the unique characteristics of CDFIs and the valuable contribution they make to their communities, while remaining sufficiently rigorous to comply with the statutory requirements.

General eligibility requirements. Section 4(a)(1) of the Bank Act requires that all applicants for Bank membership meet certain requirements for membership. These requirements are currently listed in Sec. 925.6(a) of the Membership Regulation and are being retained in the proposed rule at proposed Sec. 1263.6(a). With respect to proposed Sec. 1263.6(a), the only change to the existing regulatory text would be to add ``community development financial institution'' to the list of entities eligible for membership. As discussed above, that term has been defined to exclude federally insured depository institutions and credit unions, because such institutions are already authorized to become Bank members.

Section 4(a)(2) of the Bank Act further requires any ``insured depository institution'' applicant to have at least 10 percent of its assets in residential mortgage loans, be in sound financial condition, and have sound management and home financing policy. 12 U.S.C. 1424(a)(2). The term ``insured depository institution'' is defined in the Bank Act to include any federallyinsured bank, savings association or credit union, and thus does not include the newlyeligible CDFIs or insurance companies. See 12 U.S.C. 1422(9). Nonetheless, the Bank Act does not preclude FHFA from applying these concepts to other types of applicants, based on its authority to ensure that the Banks operate in a safe and sound manner and carry out their public policy missions. Indeed, FHFA's predecessor agency, FHFB, exercised that authority to require all applicants without federal deposit insurance, i.e., insurance companies, to have mortgage
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related assets that reflect a commitment to housing finance. 12 CFR 925.6(c); See 58 FR 43522 (Aug. 17, 1993). FHFB reasoned that such an approach treated all applicants in an equitable and consistent manner, and was consistent with the housing finance mission of the Banks. See id. at 4353143533. FHFA believes that rationale can apply as well to the newly eligible CDFI applicants, and thus is proposing to require such CDFI applicants to have mortgage related assets that reflect a commitment to housing finance. FHFA expects that the Banks will assess the commitment to housing finance requirements in light of the unique community development focus of the business of CDFIs. Because the language of the current regulation already applies to any applicant that is not an insured depository institution, no amendment to proposed Sec. 1263.6(c) is necessary to affect this change.

In a similar manner, the proposed rule would require the newly eligible CDFI applicants to satisfy requirements relating to financial condition, character of management and home financing policy. When FHFB extended those provisions to insurance companies, it reasoned that they were sufficiently important to concepts of safety and soundness and the housing finance mission to warrant doing so. See 58 FR at 43533. FHFA believes that the same rationale should apply to the newly eligible category of CDFI applicants. Thus, the proposed rule would retain the provisions within Subpart C, which would be amended as necessary to implement the CDFI provisions of HERA. The amendments to particular provisions within Subpart C are discussed separately below.

Duly organized requirement. Section 4(a)(1)(A) of the Bank Act requires that an applicant for membership be duly organized under the laws of any state or of the United States. 12 U.S.C. 1424(a)(1)(A). Section 1263.7 of the proposed rule would amend the current language of Sec. 925.7, which implements this provision, to provide that a newly eligible CDFI applicant shall be deemed to be duly organized if it is incorporated under state law. The current regulation allows an applicant to satisfy this provision if it is chartered as one of several types of depository institutions or as an insurance company. Because most CDFIs will not have such a charter, FHFA believes that being incorporated under state law is sufficient to demonstrate that a CDFI meets this requirement of the statute.

Inspection and regulation requirement. Section 4(a)(1)(B) of the Bank Act generally requires an applicant for membership to be subject to inspection and regulation under state or federal banking or similar laws. In the case of a CDFI, the statute imposes an alternative requirement, which is that the applicant be certified by the CDFI Fund. See 12 U.S.C. 1424(a)(1)(B). Accordingly, newlyeligible CDFI applicants are not required to meet the inspection and regulation requirement and, therefore, there is no need to amend the existing regulatory language, which would be carried over into proposed Sec. 1263.8. As discussed earlier, the requirement that a CDFI applicant be certified by the CDFI Fund in order to be eligible for membership is addressed by the definition of ``CDFI'' in proposed Sec. 1263.1. The proposed rule, however, does make certain clarifying revisions to the existing regulation text of proposed Sec. 1263.8, which are not intended to alter the substance of the provision.

Longterm mortgage loans requirement. Section 4(a)(1)(C) of the Bank Act requires that an applicant for membership make longterm home mortgage loans. 12 U.S.C. 1424(a)(1)(C). ``Longterm'' is defined in Sec. 925.1 to include loans with a term to maturity of five years or greater. 12 CFR 925.1. ``Home mortgage loan'' is defined in Sec. 925.1 to include, among other things, first mortgages on onetofour family or multifamily property, and mortgage passthrough securities backed by such mortgages. See id. Section 925.9 of the Membership Regulation, which implements these provisions, provides that an applicant is deemed to meet this requirement if, based on the applicant's most recent regulatory financial report filed with its appropriate regulator, the applicant originates or purchases longterm home mortgage loans. 12 CFR 925.9. Some newlyeligible CDFI applicants, such as loan funds and venture capital funds, do not file regulatory financial reports. Accordingly, proposed Sec. 1263.9 would amend the existing language to provide that a Bank shall determine whether a CDFI applicant meets the ``makes longterm home mortgage loans'' requirement based on other documentation provided to the Bank, and contemplates that a Bank can decide what level of documentation can best allow it to determine whether a particular type of CDFI satisfies this requirement.

Financial condition requirements. The current Membership Regulation includes two separate provisions relating to the financial condition of applicants for membership. Section 925.11 relates to depository institutions (which includes federally insured state chartered credit unions), while Sec. 925.16 relates to insurance companies. The proposed rule would relocate those provisions to proposed Sec. Sec. 1263.11 and 1263.16, respectively, and would amend both of them to incorporate language relating to CDFI applicants.

In proposed Sec. 1263.11, FHFA would require CDFI credit unions to comply with the same financial condition requirements that currently apply to state chartered credit unions that are insured by the NCUA.\11\ All credit unions chartered by a particular state operate under the same state laws and regulations. All are subject to oversight by the same state regulatory agency and would have the same financial reporting and examination requirements at the state level. Thus, for this category of CDFI, FHFA believes that it is most appropriate for the Banks to evaluate financial condition under the same regulatory provisions that apply to all other credit union and depository institution applicants. Those provisions are set out in proposed Sec. 1263.11(a) and (b) and require the Banks to evaluate the financial condition of the applicants based on information in the regulatory financial reports they file with their applicable regulators, their audited financial statements, and the examination reports prepared by their regulators. The key distinction for CDFI credit unions is that they are not subject to oversight by the NCUA and consequently do not file financial regulatory reports with the NCUA. Nonetheless, the CDFI credit unions should file comparable reports with their appropriate state regulator, and FHFA believes that those documents can be used by the Banks to assess the financial condition of the CDFI credit unions, applying the same criteria as in the existing regulations. To the extent that any state chartered credit unions without NCUA insurance may not in fact file regulatory financial reports with their state regulator that are comparable to those filed by NCUAregulated credit unions, or are not required to have audited financial statements or submit to regulatory examinations, FHFA requests comments on what other documentation such entities would prepare that would provide the Banks with comparable information about their financial condition. \11\ As of December 31, 2008, 955 credit unions were members of the Bank System. Of that number, 476 are state chartered and 479 are federal credit unions.

To bring the CDFI credit unions within the scope of the current financial condition requirements for depository institutions, the proposed rule would amend the existing regulatory text in two locations. The first amendment
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would revise proposed Sec. 1263.11(a) to list the types of depository institutions that are subject to its provisions and to include CDFI credit unions within that list. The second amendment would add a new provision, proposed Sec. 1263.11(b)(3)(iii), which would require all CDFI credit unions to meet certain performance trend criteria. Under the current regulation, the only depository institutions that must satisfy those criteria are institutions with a composite examination rating of ``2'' or ``3''. Because the CDFI credit unions are not subject to oversight by the NCUA and because the Banks may be less familiar with state examination ratings, FHFA believes that it is prudent to require all such CDFI credit unions to demonstrate that their earnings, nonperforming assets, and allowance for loan and lease losses are consistent with the existing performance criteria. Apart from those amendments, proposed Sec. 1263.11 would retain all of the language from the existing Sec. 925.11. FHFA requests comments on whether the application of these standards is appropriate for CDFI credit unions and whether the nature or extent of oversight and examination by a state regulator differs in any manner that would require any of the provisions in this section to be modified. For example, the current rule requires the submission of quarterly regulatory financial reports and information from a regulatory examination report. To the extent that any state chartered CDFI credit unions might not have quarterly reports, financial statements audited by a certified public accountant or regulatory examination reports, FHFA seeks information on the types of financial condition statements and regulatory reports that such entities do submit and what types of examination and rating are provided by the state regulators.

For all other CDFIs, such as CDFI loan funds and venture capital funds, FHFA is proposing new financial condition requirements. These requirements would be incorporated into the existing provisions relating to insurance companies, set out in proposed Sec. 1263.16(b). Institutions in this category of CDFIs are not subject to the same degree of state or federal oversight as are depository institutions and insurance companies. Thus, they may not be able to provide the Banks with documentation similar to examination reports or periodic regulatory financial reports to aid the Banks in assessing their financial condition. Although these CDFIs will have been certified by the CDFI Fund, that process does not include an assessment of the CDFI's financial condition. Moreover, the type and extent of available financial documentation will differ for the various categories of CDFIs. Although some CDFI loan funds and venture capital funds may be able to obtain private ratings that would be analogous to those relating to depository institutions, those are not routinely generated. Because of those differences, FHFA is proposing to establish separate financial documentation requirements and approval standards for assessing the financial condition of this category of CDFIs, which are intended to be analogous to those applicable to other applicants, while taking into account the unique characteristics of CDFIs.

The structure of proposed Sec. 1263.16(b) would generally parallel that used for depository institutions, i.e., the regulation would identify the types of financial documents that a Bank must review in assessing a CDFI's financial condition and would establish standards for determining whether an applicant's financial condition is sufficiently sound to admit it to Bank membership. Those amendments are described below.

Section 1263.16(b)(1) of the proposed rule would specify two categories of financial documents that a Bank must obtain and review when assessing a CDFI's financial condition, and would authorize a Bank to request any additional documents that it deems necessary to assessing the financial condition of the CDFI applicant. The first category of documentation relates to financial statements, and requires the submission of an independent audit that has been conducted within the prior year by a certified public accounting firm, in accordance with generally accepted auditing standards (GAAS), as well as more recent quarterly financial statements, if those are available. An applicant also must submit financial statements for the two years prior to the most recent audited financial statement. At a minimum, all such financial statements must include income and expense statements, statements of activities, statements of financial position, and statements of cash flows. The financial statements for the most recent year also must include detailed disclosures or schedules relating to the affiliates of the CDFI applicant regarding the financial position of each affiliate, their lines of business, and the relationship between the affiliates and the applicant CDFI.

FHFA believes that the use of a GAASconsistent audited financial statement is a uniform and reliable means by which an applicant can demonstrate to a Bank that it is in sound financial condition, particularly in the absence of the regulatory financial and examination reports that the Banks typically consider in evaluating other depository institutions and insurance companies for membership. Nonetheless, FHFA requests comments on whether there might be alternatives to GAAScompliant audited financial statements that would allow a Bank to assess accurately the financial condition of a CDFI applicant. If certain CDFIs do not typically obtain audited financial statements, FHFA might consider allowing the Banks to use alternative financial statements, but asks that any persons recommending such alternatives provide detailed information about the quality of such alternatives and the frequency at which they would be prepared. Examples of such alternatives might include financial statements that, while not prepared by a certified public accounting firm, would be substantially similar to audited financial statements, or financial statements prepared by a CDFI that have some other means of assuring that they accurately present its financial condition. FHFA will consider allowing the use of such alternative financial statements in the final rule if it can be reasonably assured that the Banks can rely on them to determine that the CDFI applicant is in sound financial condition.

Section 1263.16(b)(1)(ii) and (iii) of the proposed rule further requires a CDFI applicant to provide the Bank with a copy of the certification it has received from the CDFI Fund, as well as any other financial information concerning its financial condition that is requested by the Bank. With respect to the issue of certification, each CDFI applicant generally must provide a certification issued by the CDFI Fund no more than three years prior to the date of the CDFI's application for Bank membership. If an applicant's CDFI certification does not meet that requirement, the applicant must submit to the Bank a written statement that there have been no material events or occurrences since the date of certification that would adversely affect its strategic direction, mission, or business operations, and thereby its status as a CDFI.

Section 1263.16(b)(2) of the proposed rule sets out minimum financial condition standards that a CDFI must meet in order to become a member of a Bank. Those standards relate to net assets, earnings, loan loss reserves, and liquidity, and are described below.

Net asset ratio. The proposed rule would require that a CDFI applicant have a ratio of net assets to total assets
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of at least 20 percent, which is intended to address the capital adequacy of the CDFI. For purposes of this provision, ``net assets'' is to be calculated as the residual value of assets (including restricted assets) over liabilities and is to be based on information derived from the applicant's most recent financial statements.

FHFA is proposing this approach because it understands that the inclusion of restricted assets within net assets is consistent with the approach used by the CDFI Fund and others in the CDFI industry, as well as with the accounting standards for nonprofit entities. Restricted assets typically appear on CDFI balance sheets when donor or government funds are specifically designated as capital, and are thereby ``restricted'' as to their possible uses. When used in this manner, the capital may be classified as restricted, but it is nonetheless available to absorb any losses. For example, the CDFI Fund commonly awards funding for loan loss reserves, which may serve to lower a CDFI's borrowing costs. FHFA requests comment on the inclusion of restricted assets in the net asset ratio, and on the proposed use of a minimum net asset ratio of 20 percent for membership eligibility.

Earnings. The proposed rule would require a CDFI applicant to demonstrate that it has some earnings capacity. Thus, an applicant must show that it has generated a positive net income for any two of the three most recent years. For purposes of this provision, net income would be defined as gross revenues less total expenses, based on information derived from the applicant's most recent financial statements. In the definitions section of the regulation, the proposal defines ``gross revenues'' to mean total revenues received from all sources, including earnings from operations, grants and other donor contributions. This requirement is adapted from the earnings requirement for insured depository institutions in the current regulation, which requires that the applicant's adjusted net income be positive in four of the six most recent calendar quarters. Because CDFIs may not typically file quarterly regulatory reports, and generally obtain an audit of their financial statements only once a year, FHFA proposes to require that earnings be positive in two of the three most recent years, rather than four of the six most recent calendar quarters. FHFA requests comment on the appropriateness of this measure of earnings and on the proposed minimum eligibility standard.

Loan loss reserves. The proposed rule would require that an applicant's ratio of loan loss reserves to loans and leases 90 or more days delinquent, including loans sold with full recourse, be not less than 30 percent. The information to determine compliance with this provision should be derived from the applicant's most recent financial statements. Loan loss reserves, which help the CDFIs selfinsure against losses, are defined within this provision to mean a specified balance sheet account that reflects the amount reserved for loans expected to be uncollectible. The proposed rule is intended to provide a flexible and relative standard, to acknowledge the CDFIs' mission and loan origination practices while also requiring a buffer to protect the organization's continued solvency and ongoing operation. The 30 percent threshold is half of the requirement that would apply to depository institution applicants. FHFA is proposing to allow the lower ratio in recognition of a historically lower delinquency rate among CDFI originated loans, which have performed equal to or better than prime loans. As noted, the CDFIs' fundamental mission is to stabilize communities. Most CDFIs hold the loans they make and, consequently, the risk in portfolio. These two conditions prompt the use of careful underwriting, intensive homeowner and financial counseling, and subsidies to assure borrower affordability. CDFIs have the ability to modify a loan in response to a borrower's adverse life event, thus preventing a foreclosure. Given these unique circumstances, lower loan loss reserves would permit more capital to go to borrowers. However, given current housing market conditions, FHFA requests comment on the appropriateness of the proposed loan loss reserve measure, the rationale for the different standard for CDFIs, or whether there are any alternative standards that might also serve this purpose.

Liquidity ratio. The proposed rule would require that an applicant's operating liquidity ratio be no less than 1.0 for the current year, i.e., the year during which a CDFI applies for membership, as well as in at least one of the two years preceding the current year. The operating liquidity ratio is to include in the numerator unrestricted cash and cash equivalents and in the denominator the average quarterly operating expense for the four most recent quarters. FHFA believes that this operating liquidity ratio provides a measure of funds available to pay expenses and creditors by requiring a CDFI to have sufficient liquidity to cover average operating expenses for one quarter. FHFA requests comment on the appropriateness of the proposed requirement for operating liquidity.

SelfSufficiency or Sustainability Ratio. The selfsufficiency or sustainability ratio is a measure used to evaluate the extent to which a CDFI can cover its expenses from earned revenue and, by inference, the CDFI's independence from grants and loans. The ratio is computed as earned revenue divided by total expenses. Full selfsufficiency is achieved when a CDFI achieves a ratio of 1.0 (100 percent) or greater. However, selfsufficiency ratios are affected by the type of services and grant programs operated by the CDFI. In some cases, the self sufficiency ratio may not adequately portray the financial condition of the CDFI, and too stringent a ratio could countermand the service delivery requirements for certification by the CDFI Fund. See 12 U.S.C. 4701(b). The proposed rule does not include a requirement for the self sufficiency ratio, but FHFA seeks comment on whether to include a standard for the selfsufficiency ratio as part of the minimum financial condition standards for CDFI members and, if so, what the threshold standard should be.\12\
\12\ By way of reference, between 2003 and 2005, the
sustainability ratio for CDFI loan funds averaged around 65 percent; the median was 63 percent. Venture capital funds, which have a different business line, had a sustainability ratio of 68 percent. Credit unions principally dedicated to lending would be expected to consistently have ratios in excess of 100 percent. See Approaches to CDFI Sustainability: Report prepared by the Aspen Institute Economic Opportunities Program, for the Department of the Treasury, Community Development Financial Institutions Fund, July 2008.

CDFI Bank Holding Companies. FHFA understands that there are some bank holding companies that are certified as CDFIs, but it is not including that category of institution in the proposed rule. Any bank holding company would, by definition, control a federally insured commercial bank, which is eligible for Bank membership in its own right. Given that authority, FHFA believes that the appropriate vehicle for Bank membership for such enterprises is through the existing process for insured depository institutions. Nonetheless, FHFA requests comment on whether it should include in the final rule additional provisions relating to bank holding company membership based on CDFI status. To the extent that any commenters address this issue, FHFA also asks that they provide information about specific holding companies that operate as CDFIs, their relationships to their depository institution subsidiaries, and how membership via the CDFI
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provisions would provide benefits not available as a result of the depository institution becoming a member.

Character of Management. The current Sec. 925.12 requires that an applicant's character of management be consistent with sound and economical home financing. To meet the existing requirement, an applicant must provide the Bank with a certification that it has not, since the applicant's most recent regulatory examination report, been subject to any enforcement actions, criminal, civil or administrative proceedings, or criminal, civil or administrative monetary liabilities, lawsuits or judgments.

The proposed rule would amend the existing provision by replacing the reference to ``applicant'' with a listing of the types of entities to which proposed Sec. 1263.12(a) would apply. The list would include the institutions currently covered by this provision, i.e., depository institutions and insurance companies, and also would add CDFI credit unions to that category. As noted previously, because state chartered credit unions that are insured by NCUA must comply with this provision, FHFA believes that those provisions should apply as well to state chartered credit unions that qualify as CDFI credit union applicants.

Because certain of the newlyeligible CDFIs, such as loan funds and venture capital funds, are not regulated and, therefore, do not undergo regulatory examinations and are not subject to enforcement actions, the proposed rule would amend proposed Sec. 1263.12(b) to require such applicants to provide to the Bank the same certification, except for enforcement actions, with respect to the past three years. In light of the fact that these CDFIs are not subject to CAMELStype ratings produced by the banking regulators, which evaluate an institution's management, FHFA requests comment on whether there are any other means by which a Bank can assess the character of a CDFI applicant's management.

Home Financing Policy. Under the current Membership Regulation, applicants with a ``Satisfactory'' or better Community Reinvestment Act (CRA) rating are deemed to meet the requirement that their home financing policy is consistent with sound and economical home financing. Section 1263.13(b) of the proposed rule would retain the existing requirement that applicants not subject to the CRAsuch as CDFI applicantsmust provide a written justification, acceptable to the Bank, explaining how and why their home financing policy is consistent with the Bank System's housing finance mission.

Rebuttable Presumptions. Section 925.17 of the Membership Regulation allows presumptions of compliance or noncompliance with certain membership eligibility requirements to be rebutted, upon meeting certain requirements set forth in that regulation. The proposed rule would amend the regulatory language to enable newlyeligible CDFI applicants to rebut presumptive noncompliance with such membership eligibility requirements, in the same manner as other applicants may do under the current regulations.

Accordingly, the proposed rule would extend the existing rebuttal provisions relating to presumptive noncompliance with the financial condition and character of management requirements to CDFI applicants. Such applicants could rebut those presumptions by submitting a written justification providing substantial evidence, acceptable to the Bank, demonstrating that their financial condition and character of management are both consistent with the standards for approval as members.

Proposed Sec. 1263.17(e)(2) would provide that if a CDFI applicant or any of its directors or senior officers has been the subject of any criminal, civil or administrative proceedings reflecting upon creditworthiness, business judgment, or moral turpitude in the past three years, the applicant must provide a written analysis indicating that the proceedings will not likely have a significantly deleterious effect on the applicant's operations. The written analysis must address the severity of the charges, and any mitigating action taken by the applicant or its directors or senior officers.

Proposed Sec. 1263.17(e)(3) would provide that if there are any known potential criminal, civil or administrative monetary liabilities, material pending lawsuits, or unsatisfied judgments against the CDFI applicant or any of its directors or senior officers in the past three years that are significant to the applicant's operations, the applicant must provide a written analysis acceptable to the Bank indicating that the liabilities, lawsuits or judgments will not likely cause the applicant to fall below its applicable net asset ratio set forth in proposed Sec. 1263.16(b)(2)(i). The written analysis shall state the likelihood of the applicant or its directors or senior officers prevailing, and the financial consequences if the applicant or its directors or senior officers do not prevail.

F. Subpart DStock Purchase Requirements

The proposed rule would make various technical changes to the stock purchase requirements currently set forth in various provisions of Subpart D. At present, the minimum stock purchase requirements specified in Sec. 925.20(a) are based on statutory provisions that cease to apply to a Bank once it has converted its capital structure to the form required by the GrammLeachBliley Act (GLB Act). Because all but one of the Banks has completed its capital conversion, proposed Sec. 1263.20 is being amended to add language to indicate that the minimum stock purchase requirement for a member shall be the minimums specified in each Bank's capital structure plan. For members of the Bank that has not converted, the stock purchase requirement shall continue to be as specified in the Membership Regulation. The proposed rule also makes some conforming changes to proposed Sec. Sec. 1263.21 and 1263.22, both of which relate to distinctions based on conversion to the GLB Act capital structure.

G. Other Subparts

The proposed rule makes no substantive changes in any of the remaining subparts of the Membership Regulation. In Subpart H, relating to the reacquisition of membership, the proposed rule would delete language from the current Sec. 925.30(b) relating to institutions that withdrew from membership prior to December 31, 1997, as the passage of time has rendered that language moot.

H. Community Support AmendmentPart 944

Section 10(g)(1) of the Bank Act requires FHFA to establish standards of community investment or service for members of the Banks to maintain continued access to longterm Bank advances, taking into account factors such as a member's performance under the CRA and the member's record of lending to firsttime homebuyers. See 12 U.S.C. 1430(g)(1), (2). The FHFB regulation setting forth such ``community support'' standards is at 12 CFR part 944. Under these provisions, a Bank member that is subject to the CRA is deemed to meet the CRA standard if its most recent CRA evaluation is ``outstanding'' or ``satisfactory.'' See 12 CFR 944.3(b)(1). A member also is presumed to meet the firsttime homebuyer lending standard if its CRA evaluation is ``outstanding'' and there are no public comments or other
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information to the contrary. 12 CFR 944.3(c). Members that are not subject to the CRA, such as credit unions and insurance companies, are only required to meet the firsttime homebuyer lending standard. Id. Because the newly eligible CDFIs are not subject to the CRA, they would only be subject to the firsttime homebuyer lending standard. Section 944.3(c)(1) includes a nonexclusive list of eligible activities that meet the firsttime homebuyer lending standard, such as: having an established record of lending to firsttime homebuyers; providing homeownership counseling programs for firsttime homebuyers; providing or participating in marketing plans and related outreach programs targeted to firsttime homebuyers; and providing technical assistance or financial support to organizations that assist firsttime homebuyers. See id. at 944.3(c)(1).

FHFA believes that a CDFI should be able to comply with these requirements, even if it is not subject to the CRA and may have limited experience in lending to firsttime homebuyers. Nonetheless, FHFA requests comments on whether it is appropriate to apply the current requirements to CDFIs or whether it would be appropriate to adopt an alternative community support standard for CDFIs that recognizes their unique mission and business practices while still complying with this statutory requirement.

I. Community Financial Institution Amendments

Apart from the amendments authorizing certified CDFIs to become Bank members, HERA included certain other amendments relating to ``community development activities.'' Section 1211 of HERA amended the Bank Act to broaden the circumstances under which ``community financial institutions'' (CFI), which are FDICinsured members with average total assets of $1 billion or less, may obtain advances. Specifically, HERA allowed CFIs to obtain longterm advances for the purpose of funding ``community development activities'' and further allowed CFIs to pledge secured loans for ``community development activities'' as collateral for their advances. Because a CFI must be an institution with FDIC insurance, it does not appear that any of the newly eligible CDFIs, all of which would lack FDIC insurance, would be eligible to take advantage of these amendments to the advances and collateral provisions of the Bank Act. Nonetheless, the Finance Agency requests comments on whether there is any basis in the legislative history to HERA or otherwise on which it could reasonably rely to construe the new CFI provisions as applying to CDFIs as well as CFIs.

III. Paperwork Reduction Act

The information collection contained in the current Membership Regulation, entitled ``Members of the Banks,'' has been assigned control number 25900003 by the Office of Management and Budget (OMB). The proposed rule, if adopted as a final rule, would not substantively or materially modify the approved information collection. Consequently, FHFA has not submitted any information to OMB for review under the Paperwork Reduction Act of 1995. 44 U.S.C. 3501, et seq.

IV. Regulatory Flexibility Act

The proposed rule, if adopted as a final rule, will apply only to the Banks, which do not come within the meaning of ``small entities,'' as defined in the Regulatory Flexibility Act (RFA). See 5 U.S.C. 601(6). Therefore, in accordance with section 605(b) of the RFA, 5 U.S.C. 605(b), the General Counsel of FHFA hereby certifies that the proposed rule, if promulgated as a final rule, will not have a significant economic impact on a substantial number of small entities. List of Subjects in 12 CFR Parts 925 and 1263

Federal home loan banks, Reporting and recordkeeping requirements.

For the reasons stated in the preamble, FHFA proposes to amend chapters IX and XII of title 12 of the Code of Federal Regulations as follows:
CHAPTER IXFEDERAL HOUSING FINANCE BOARD

PART 925MEMBERS OF THE BANKS

1. Transfer 12 CFR part 925 from chapter IX, subchapter D, to chapter XII, subchapter D and redesignate as 12 CFR part 1263.

2. Newly redesignated part 1263 is revised to read as follows: PART 1263MEMBERS OF THE BANKS
Subpart ADefinitions
Sec.
1263.1 Definitions.
Subpart BMembership Application Process
1263.2 Membership application requirements.
1263.3 Decision on application.
1263.4 Automatic membership.
1263.5 Appeals.
Subpart CEligibility Requirements
1263.6 General eligibility requirements.
1263.7 Duly organized requirement.
1263.8 Subject to inspection and regulation requirement.
1263.9 Makes longterm home mortgage loans requirement.
1263.10 Ten percent requirement for certain insured depository institution applicants.
1263.11 Financial condition requirement for depository institutions and CDFI credit unions.
1263.12 Character of management requirement.
1263.13 Home financing policy requirement.
1263.14 De novo insured depository institution applicants.
1263.15 Recent merger or acquisition applicants.
1263.16 Financial condition requirement for insurance company and certain CDFI applicants.
1263.17 Rebuttable presumptions.
1263.18 Determination of appropriate Bank district for membership. Subpart DStock Requirements
1263.19 Par value and price of stock.
1263.20 Stock purchase.
1263.21 Issuance and form of stock.
1263.22 Adjustments in stock holdings.
1263.23 Excess stock.
Subpart EConsolidations Involving Members
1263.24 Consolidations involving members.
Subpart FWithdrawal and Removal From Membership
1263.26 Voluntary withdrawal from membership.
1263.27 Involuntary termination of membership.
Subpart GOrderly Liquidation of Advances and Redemption of Stock 1263.29 Disposition of claims.
Subpart HReacquisition of Membership
1263.30 Readmission to membership.
Subpart IBank Access to Information
1263.31 Reports and examinations.
Subpart JMembership Insignia

1263.32 Official membership insignia.

Authority: 12 U.S.C. 1422, 1423, 1424, 1426, 1430, 1442, 4511, 4513.
Subpart ADefinitions
Sec. 1263.1 Definitions.

For purposes of this part:

Adjusted net income means net income, excluding extraordinary items such as income received from, or expense incurred in, sales of securities or fixed assets, reported on a regulatory financial report.

Aggregate unpaid loan principal means the aggregate unpaid principal of a subscriber's or member's home mortgage loans, home purchase contracts and similar obligations.

Allowance for loan and lease losses means a specified balancesheet account
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held to fund potential losses on loans or leases, that is reported on a regulatory financial report.

Appropriate regulator means:
(1) In the case of an insured depository institution or CDFI credit union, the Federal Deposit Insurance Corporation, Board of Governors of the Federal Reserve System, National Credit Union Administration, Office of the Comptroller of the Currency, Office of Thrift Supervision, or appropriate state regulator that has regulatory authority over, or is empowered to institute enforcement action against, the institution, as applicable, and
(2) In the case of an insurance company, an appropriate state regulator accredited by the National Association of Insurance Commissioners.

Bank Act means the Federal Home Loan Bank Act, as amended (12 U.S.C. 1421 through 1449).

CDFI credit union means a state chartered credit union that has been certified as a CDFI by the CDFI Fund and that does not have federal share insurance.

CDFI Fund means the Community Development Financial Institutions Fund established under section 104(a) of the Community Development Banking and Financial Institutions Act of 1994 (12 U.S.C. 4701 et seq.).

CFI asset cap means $1 billion, as adjusted annually by FHFA, beginning in 2009, to reflect any per

FOR FURTHER INFORMATION CONTACT

Sylvia Martinez, Senior Policy Analyst/Adviser, 2024082825, sylvia.martinez@fhfa.gov; Amy Bogdon, Senior Advisor, 2024082546, amy.bogdon@fhfa.gov, Division of Federal Home Loan Bank Regulation; Deattra Perkins, Community Development Specialist, 2024082527, deattra.perkins@fhfa.gov, Division of Housing Mission and Goals. For legal questions contact Sharon B. Like, Associate General Counsel, 2024148950, sharon.like@fhfa.gov. You can send regular mail to the Federal Housing Finance Agency, Fourth Floor, 1700 G Street, NW., Washington DC 20552. The telephone number for the Telecommunications Device for the Deaf is 8008778339.