Good morning

I have a quick question. If the bank purchases mortgage backed securities within it's assessment area and the loans were made to LMI borrowers - does the property also need to be within an LMI community in order to get CRA credit for the investment? While we an drill down further and request this, I have been unable to determine this during my quick search this morning.

Thank you!

No. Affordable housing for LMI is all that is needed for the investment to qualify.

Thank you! You've confirmed my thoughts.

Are you sure the mortgages are "affordable"? Have you done anything to confirm that? It's not enough for a mortgage to be extended to a LMI borrower. It must be affordable too. This means you need to compare the mortgage costs (technically you should also include any insurance and taxes) and compare to the income of the borrower. If the occupancy costs exceed 30% it's not affordable.

This might be because of the type of investments I am asked to evaluate, but I've never had to show any documentation beyond verifying that the underlying mortgages were originated to LMI borrowers or in LMI areas within or including our assessment area.

We always advise our clients if you are going to claim credit for community development under CRA the first thing you should do is decide which CD purpose is fulfilled by the activity you are financing, then (2) develop a written explanation of why you believe the activity is qualifed as CD and (3) finally collect any documentation substantiating the qualifications of the activity to be recognized as community development.

In the initial exchange between you and Compl 1010 TX "affordable housing" was mentioned and the borrowers were referenced as "LMI borrowers". So it appeared that you were claiming affordable housing as the CD purpose you believe is being fulfilled.

Another rule we emphasize is to be sure of what you are claiming credit for. So, if I were an examiner I would ask you what CD purpose is fulfilled and what are the qualifying characteristics of the activity and what documentation do you have to substantiate what you are claiming.

How would you answer those questions?