How is the transaction be accounted for on your bank's books? Ordinarily you don't report participations for HMDA purposes -it's all or nothing (unlike CRA where participations are counted in your SB, SF, and CD loans). Are these mortgage-backed securities? Are you reporting the transaction for HMDA purposes? What Call Report codes are you reporting the transaction under?

Good questions to which I have few answers.

This was an area we were exploring with a local CDFI that would sell participations in groups of 1-4 affordable mortgages targeted to LMI borrowers. The CDFI would still service the loans.

So- I guess my core question would be can I count such a purchased participation under the CD test. You are correct, it couldn't be counted under the lending test because they aren't whole loans and also aren't reported as HMDA.

Norm, as a clarification, did the bank purchase loans or investments? Normally when I hear the words "groups of", I think of the bank purchasing a share of an investment rather than a participation in actual loans.

We haven't acted yet. From what I understand, this is a participation of actual loans- not a MBS or other investment.

Side note- if we want to scrap this entire idea and someone has a good way to purchase CD loans from CDFI's, I'd be happy to read your private message. New territory to me, but I do need to source and purchase some Community Development loans.

Lend the money to the CDFI and take the mortgages as collateral. The loan will be to the CDFI, not to the homeowners (therefore not HMDA reportable), and collateralized by the mortgages which the CDFI can continue to serve. Therefore you won't have the participation problem and the borrower is engaged in promoting affordable housing which you can take credit for as a CD loan. The CDFI is promoting a community development activity - affordable housing, so by financing them you are financing a qualified CD activity. The best free advice you can get by reading BOL!

Thanks, Len. I do like "free".

Any others who have experience working with CDFI's in addition to what Len said, feel free to PM me.

If these are individual loans (or a block of whole loans) I think you would report these on your HMDA LAR with action code 6.

If the CDFI is securitizing these and you are buying the securities, the treatment will be different. Under the large bank rule, that would be reported under the investment test. I've never worked in a bank under the ISB rule though, so I'll defer to someone with ISB experience to opine on ISB treatment.

If you have a formal arrangement to purchase loans or MBS from the CDFI, I'd also write that up and include it in my self-assessment.