We have loans to individuals that purchase small multi-family complexes in low/moderate income neighborhoods. This is their primary business, purchasing and sometimes renovating small apartment complexes for rental to those that one would assume are low/moderate income families based on the neighborhood and the low rental rates. The problem is that our loan customers often times do not know the income level of the renters as it is not asked for on rental applications or agreements. First, can such loans be considered as community development loans, and second, does anyone have any advice on how to document our files so that bank examiners will accept these types of loans as community development loans? It seems that bank examiners are wanting proof that renters are in fact low/moderate income, but again, our borrowers have no income information. Thank you for any help you can give me!!

We report loans for multi-families located in a "LOW" income area as CDL. We don't know the income of the renters, but our FDIC examiner accepts these. If the dwelling is approved for Section 8 housing (low-income) we report these also as CDL. For multi-family loans in "Moderate" income areas, I just keep a list for the examiner to see. I don't know how much credit we get for these, but it can't hurt.

My examiner suggested the following scenario:

Pull median income for the tract in question. Use 80% of this figure. Now take 30% of that figure and attribute that to housing costs. How do the rents (from your rent roll) compare with your multi-family properties?

$50,000 Median Income
$40,000 (80% of Median = Moderate Income)
$12,000 (30% of Moderate Income)
$ 1,000 Monthly Rental Expense

$ 700 2 Bedroom Rent in your complex
Rents are affordable to low and moderate income renters.

Now throw in your market experience. Does the borrower focus on low and mod properties to pick up transient renters, military staff, etc.? Would a cheep bank examiner choose to live in the $700 apartment? Sure some would, but if you can support, with your market knowledge that the property really has a high focus on low or mod income residents (ie take some pictures!) and it's affordable, you should get credit for the property.

If the property is in a middle or high income neighborhood you'll need to show that the rents are actually held for low or mod income people (ie section 8, LIHTC, etc.) If you can't show that, you can probably assume some cheep bank examiners live in the units and it's not CD.