Kind of complicated, so I will list it out:

1. We have a line of credit to a contractor to build individual homes.

2. When the homes are completed, we are making loans to the contractor to finance the individual houses for three years while they sell/lease to potential borrowers and pay off the Line of Credit.

3. They lease with option to buy to borrowers for three years, then the lessee is responsible for obtaining permanent financing and their rent payments are applied to the loan balance.

4. They sell the houses for $275k. The market median house price is $322k currently.

5. They have income restrictions / limitations on the borrowers to keep them from going to wealthier buyers.

Questions:

1. Can we get CD credit for the individual house loans for the three year lease period?

2. Can we get CD credit for the Line of Credit to the contractor for the initial construction of the homes?


I know this is a little different and I really appreciate your opinions, thanks.

1. How much is the original line of credit?

2. How much are each of the buy out loans?

1. Unsure of the LOC amount, but I believe it's a few million.

2. Well, they construct the homes for about 100k and sell the houses to the borrowers for 275k. When the houses are intially completed, the lease/purchase contract between the contractor and lessor is for 275k and that holds for the 3 year lease term when the rents are applied to the sales price and increases the borrower's equity.

1. If you can document the income restrictions on the end purchasers of the houses, showing they are purchased by low and moderate income people, you should be able to count the line as long as it is indeed over $1 million.

2. As for the smaller loans used to buy down the line. It would depend on how they are structured. IF they do NOT fall on your HMDA LAR or your CRA LR you would probably be able to count them as well.

I personally like the concept of the lease with option to buy with the payments going towards the purchase of the home. Sounds like a really nice program. Just document the heck out of it and make sure the income restrictions are in place.

Thank you Rie, I appreciate your thoughts.

Anyone else have any opinions or ideas? I welcome them.

Thanks, Mark.

CD loans do not always have to be greater than $1 million.

The over 1 million dollar amount relates to loans that do not qualify as small business loans because they are greater than $1 million. If the amount was $1 million or less and they qualify as Small Business loans they would be reported as Smal Business and not as CD.

If you have a CD activity that is less than $1 million and it does not qualify as a small business loan you can count it as a CD activity.

If you are making advances under a LOC the individual advances are not reported. The amount of the LOC is reported if it meets the small business criteria. Over $1 million and it is not reportable as a small business loan. Therefore you may be able to take CD credit If the PURPOSE is to build low cost louseing for LMI individuals. Look at how much of the LOC is being advanced for other purposes. That will have a bearing on qualifying.

If the loans to finance the individual homes are seperate from the construction LOC they also may be considered as a CD activity. As long as they do not qualify as a Small Business loan, which they might.

Make a good write up and document the LMI aspects of the LOC and the home financing. IMO you have a good shot at getting an OK from examiners.

There are a lot of elements to the situation that show the potential for community development activity. But there are also a lot of questions that need to be answered first. For example, is the line secured or unsecured? If secured, by what? How much is the line? These questions affect "phase I" which is separate from phase II, the lease/purchase contract.
That presents its own set of questions. Is the title transferred to another entity to lease/sell the dwellings? If so, those transactions may be reportable under HMDA as dwelling secured loans for purpose of purchase which would disqualify them for CD credit because they are not multi-family affordable housing. Also, if the original loans are secured by the specific properties and title doesn't change, they may be considered to be reportable as a refinance situation because you will be refinancing one dwelling secured loan with another for the same borrower (contractor). On the other hand, if the original loans are not secured by the specific dwelling property, then they may not be reportable under HMDA because they won't have a reportable purpose. One of the very big questions is, "Are any of these loans reportable under either CRA or HMDA?" If they must be reported, the only time you can get CD credit and report a loan is multi-family affordable housing which does not seem to apply here.
This may sound confusing because there are so many variables. But you really have to clearly state every pertinent fact in order to get an answer you can rely on. Have you contacted your Agency Field Review Examiner and bounced the situation off them?
Do you finance the final mortgage to the actual LMI person at the end of the lease? Even though not a CD loan, you would still get credit for lending to LMI applicants and perhaps get credit for an innovative program too.
All of the responses in this thread give you a good idea of the many issues you need to evaluate to determine if there is a way to get CD credit for this very interesting program.

Excellent response Len. I will be doing much more research on these and will take into account the issues that you all have raised. Thanks again, Mark.

OK, so a key question:

When a loan is reported on the HMDA or CRA LAR, can it also be considered as a Community Development loan? I thought for this instance, double dipping was possible.

Help!

Only if it is 5+ multiple housing. The examiner can "consider" other loans further when they come in, for whatever that is worth. But that is very subjective and depends on the examiner.

My last examiner would only consider those loans that specifically met the definition, nothing else, NO double dipping of any kind. A colleague of mine was allowed consideration for a few CD purpose loans that were reported either on their HMDA LAR or CRA LR. It just depends. He showed me his report and they were actually listed right there.

Go figure.

Our examiner gives us consideration for Business loans that are actually CD loans but can't be counted that way because of the (stupid) rules.