Community Reinvestment Act Regulations Revisions

Content

ACTION:

Joint final rule.

SUMMARY:

The OCC, the Board, the FDIC, and the OTS (collectively, “the agencies”) are adopting revisions to our rules implementing
the Community Reinvestment Act (CRA). The agencies are revising the term “community development” to include loans, investments,
and services by financial institutions that support, enable, or facilitate projects or activities that meet the “eligible
uses” criteria described in Section 2301(c) of the Housing and Economic Recovery Act of 2008 (HERA), as amended, and are conducted
in designated target areas identified in plans approved by the United States Department of Housing and Urban Development (HUD)
under the Neighborhood Stabilization Program (NSP). The final rule provides favorable CRA consideration of such activities
that, pursuant to the requirements of the program, benefit low-, moderate-, and middle-income individuals and geographies
in NSP target areas designated as “areas of greatest need.” Covered activities are considered both within an institution's
assessment area(s) and outside of its assessment area(s), as long as the institution has adequately addressed the community
development needs of its assessment area(s). Favorable consideration under the revised rule will be available until no later
than two years after the last date appropriated funds for the program are required to be spent by the grantees. The agencies
will provide reasonable advance notice to institutions in the
Federal Register
regarding termination of the rule once a date certain has been identified.

DATES:

Effective Date: This joint final rule is effective January 19, 2011.

FOR FURTHER INFORMATION CONTACT:

OCC: Michael S. Bylsma, Director, or Margaret Hesse, Special Counsel, Community and Consumer Law Division, (202) 874-5750; or Greg
Nagel or Brian Borkowicz, National Bank Examiners, Compliance Policy, (202) 874-4428; Office of the Comptroller of the Currency,
250 E Street, SW., Washington, DC 20219.

Board: Paul J. Robin, Manager, Reserve Bank Oversight and Policy, (202) 452-3140; or Jamie Z. Goodson, Attorney, (202) 452-3667;
Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System, 20th Street and Constitution
Avenue, NW., Washington, DC 20551.

FDIC: Janet Gordon, Senior Policy Analyst, Division of Supervision and Consumer Protection, (202) 898-3850 or Richard Schwartz,
Counsel, Legal Division, (202) 898-7424; Federal Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 20429.

OTS: Stephanie M. Caputo, Senior Compliance Program Analyst, Compliance and Consumer Protection, (202) 906-6549; or Richard Bennett,
Senior Compliance Counsel, Regulations and Legislation Division, (202) 906-7409; Office of Thrift Supervision, 1700 G Street,
NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

Background

The Community Reinvestment Act (CRA) requires the Federal banking and thrift regulatory agencies to assess the record of each
insured depository institution in helping to meet the credit needs of its entire community, including low- and moderate-income
neighborhoods, consistent with the safe and sound operation of the institution, and to take that record into account when
the agency evaluates an application by the institution for a deposit facility. (1) The agencies have promulgated substantially similar regulations to implement the requirements of the CRA. (2)

There is a pressing need to provide housing-related assistance to stabilize communities affected by high levels of foreclosures.
High levels of foreclosures have devastated communities and are projected to continue into 2012 and beyond with damaging spillover
effects for low- and moderate-income census tracts, as well as middle-income census tracts, affected by high levels of loan
delinquencies and foreclosures. Among the many consequences of high levels of foreclosures are growing inventories of vacant
foreclosed properties and institution “other real estate owned” (OREO) properties, depreciating home values, declining property
tax bases, and destabilization of communities directly affected by high levels of foreclosures and of adjacent and surrounding
neighborhoods.

Neighborhood Stabilization Program (NSP)

Congress recognized the need to provide emergency assistance to address these problems with the establishment of the Neighborhood
Stabilization Program (NSP) through Division B, Title III, of the Housing and Economic Recovery Act of 2008 (HERA), Public
Law 110-289 (2008). Under HERA, emergency funds (“NSP1”) totaling nearly $4 billion for the redevelopment of abandoned and
foreclosed properties were distributed to States and localities with the greatest need for such funds according to a formula
based on the number and percentage of home foreclosures, the number and percentage of homes financed by a subprime mortgage-related
loan, and the number and percentage of homes in default or delinquency in each State or unit of general local government.
Under NSP1, each of the 50 States and Puerto Rico received a minimum award of $19.6 million and 254 local areas received

  grants totaling $1.86 billion ranging from $2.0 million to $62.2 million. [(3)]()

Using similar criteria, the American Recovery and Reinvestment Act of 2009 (ARRA), Public Law 111-5 (2009), provided supplementary
NSP funding (“NSP2”) to be awarded as grants, through a competitive bidding process, to State and local governments, as well
as to non-profit organizations and consortia of non-profit entities. On January 14, 2010, HUD awarded a combined total of
nearly $2 billion in NSP2 grants. (4) To receive NSP funding, each grantee was required to submit an action plan or application, including any amendments thereto,
to HUD according to specific alternative requirements set out by HUD in 2008 and 2009. (5)

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), Public Law 111-203, enacted July 21, 2010,
provided $1 billion in additional NSP funding to be allocated by a funding formula to be established by HUD within 30 days
after enactment. Under the Dodd-Frank Act, HUD's funding formula will continue to consider the same criteria regarding foreclosure
rates, subprime mortgages, and home mortgage defaults and delinquencies and each State will receive not less than 0.5 percent
of the new funds. Each State or local government grantee must establish procedures to create preferences for the development
of affordable rental housing for properties assisted with the funds made available under the Dodd-Frank Act. (6) On September 8, 2010, HUD announced the allocation of $970 million in NSP3 funding to 283 grantees nationwide and has issued
guidance to grantees on the preparation and submission of action plans.

Section 2301(c) of HERA, as amended, establishes five activities that are “eligible uses” of NSP funds (for purposes of this
rule, designated as “NSP-eligible activities”). NSP-eligible activities are projects or activities that use the NSP funds
to: (1) Establish financing mechanisms for purchase and redevelopment of foreclosed upon homes and residential properties,
including such mechanisms as soft-seconds, loan loss reserves, and shared equity loans for low- and moderate-income homebuyers;
(2) purchase and rehabilitate homes and residential properties that have been abandoned or foreclosed upon, in order to sell,
rent, or redevelop such homes and properties; (3) establish and operate land banks for homes and residential properties that
have been foreclosed upon; (4) demolish blighted structures; and (5) redevelop demolished or vacant properties. (7) In addition, Section 2301(f)(3)(A) of HERA, as amended, provides that all NSP funds must be used with respect to individuals
and families whose income does not exceed 120 percent of the area median income, and not less than 25 percent of funds must
be used to house individuals and families whose incomes do not exceed 50 percent of area median income. (8)

HUD approves NSP action plans and applications, including amendments thereto (hereinafter referred to as “NSP plans” or “plans”),
for all NSP grantees. These public documents must designate “areas of greatest need” for targeting NSP-eligible activities,
consistent with statutory criteria. The vast majority of NSP-targeted areas are listed on a map database located on HUD's
Web site at: http://www.hud.gov/nspmaps. However, there may be a few NSP-targeted geographies in HUD-approved State NSP1 plans that are not identified in the HUD census
tract database. Information about these targeted areas may be found in the individual plans. NSP3 targeting data will periodically
be added to these maps in a timely manner following approval of grantee action plans.

HUD has allocated NSP funds in a way that assists communities with the greatest need to address the adverse consequences of
elevated foreclosure levels, consistent with Congressional intent. Allowing institutions to receive CRA consideration for
NSP-eligible activities in NSP-targeted areas creates an opportunity to leverage government funding targeted to areas with
high foreclosure or vacancy rates.

Proposed Rule

The definition of “community development” is a key definition in the agencies' CRA regulations. Financial institutions receive
positive consideration in their CRA examinations for community development loans, qualified investments, and community development
services which have a primary purpose of “community development.”

The agencies proposed to revise the interagency CRA regulations by adding to the definition of “community development” loans,
investments, and services that support, enable, or facilitate NSP-eligible activities in designated target areas identified
in plans approved by HUD under the NSP. (9) For example, under the proposed revised definition of “community development,” a financial institution would receive favorable
CRA consideration for a donation of OREO properties to non-profit housing organizations in eligible middle-income, as well
as low- and moderate-income, geographies. In addition, under the proposal, institutions would receive favorable CRA consideration
if they provided financing for the purchase and rehabilitation of foreclosed, abandoned, or vacant properties in targeted
areas. Other examples of activities that would receive favorable CRA consideration under the proposal are loans, investments,
and services that support the redevelopment of demolished or vacant properties in such areas, consistent with eligible uses
for NSP funds.

Although the CRA rules expressly encourage activities that benefit low- or moderate-income individuals or geographies, the
agencies have created limited exceptions to address certain adverse circumstances that may affect middle-income individuals
and geographies. (10) The agencies believe that the purposes of CRA can be served by providing CRA incentives to institutions to engage in community
development loans, investments and services that meet the narrowly tailored requirements of the NSP. First, HUD has stated
that its funding of these programs was designed to satisfy Congressional intent that the funds have maximum impact and be
targeted to States and local communities with the greatest needs. (11) In addition, while, by its statutory terms, the NSP may benefit middle-income individuals, grantees must use at least 25 percent
of their funds to

  house low-income individuals and families.

Under the current CRA rules, an institution is evaluated primarily on how well it helps meet the credit and community development
needs of its CRA assessment area(s). However, the agencies note that many foreclosed residential properties owned by an institution
may be located in areas that are outside of the institution's CRA assessment area(s). Restricting CRA consideration of NSP-eligible
activities to an institution's assessment area(s) may not fully help to promote Congress's objectives for the NSP. Therefore,
the proposed rule provided that an institution that has adequately addressed the community development needs of its assessment
area(s) may receive favorable consideration for NSP-eligible activities under this provision that are outside of its assessment
area(s).

There is precedent for allowing greater flexibility concerning the CRA focus on assessment area(s) in certain temporary and
exigent circumstances. For example, in 2006, the agencies issued a supervisory policy statement providing that an institution
would receive favorable CRA consideration for engaging in activities that helped revitalize or stabilize areas affected by
Hurricanes Katrina and Rita, even if such areas were not in the institution's assessment area(s), provided the institution
had adequately met the CRA-related needs of its assessment area(s).

Finally, the agencies stated their intention that the proposed rule be generally tied to the duration of the NSP. As described
more fully below, the NSP does not have a “sunset” date. Therefore, a specific termination date for the regulatory provision
was not proposed. Instead, the proposed rule provided that NSP-eligible activities would receive favorable consideration under
the new rule if conducted no later than two years after the last date appropriated funds for the program are required to be
spent by the grantees. The proposal indicated that the agencies will provide reasonable advance notice to institutions in
the
Federal Register
regarding termination of the rule once a date certain has been identified.

The proposed rule would have imposed no new requirements on institutions. It simply would have expanded the categories of
activities that qualify for CRA consideration as “community development.” No institution would be required to provide loans,
investments, or services pursuant to the proposed expanded definition. In addition, any community development loans that may
be made by large institutions under the proposed new provision would be covered under existing loan reporting requirements.
As such, no new reporting requirements and negligible, if any, administrative costs would result from the proposed rule if
adopted. The agencies anticipated that the proposal, if finalized, would provide an incentive for institutions to engage in
activities that stabilize foreclosure affected communities approved for NSP projects. Thus, the proposed rule would create
an opportunity to leverage government funded projects with complementary private financing in areas targeted for assistance
with minimal, if any, regulatory burden or costs.

Review of Comments on the Proposed Rule and Agencies' Final Rule

Together, the agencies received 34 comments addressing the proposed revision that would expand the definition of “community
development.” (12) The commenters represented a variety of industry, consumer, community development, and governmental entities. The commenters
generally supported expanding the definition of “community development” to encourage housing-related assistance to stabilize
communities affected by high levels of foreclosures and delinquencies.

In addition to a request for comments generally, the agencies asked for and received comment on five specific issues in connection
with the proposal.

Activities Eligible for CRA Consideration: Virtually all of the commenters supported the intent of the proposed rule to permit CRA consideration, as a component of the
regulatory “community development” definition, of loans, investments, and services that support activities that are NSP-eligible
and are conducted in NSP-targeted areas. In particular, the agencies requested comment on whether favorable CRA consideration
should be limited to support of those activities specified in a HUD-approved NSP plan for the relevant area or support of
specific activities that have been funded by the NSP. The commenters that specifically addressed the question opposed limiting
CRA consideration to such activities. For example, a community development organization stated that so limiting covered activities
would unduly burden banks and examiners by requiring them to verify that an activity was covered by a plan.

A few industry and government commenters suggested that the agencies adopt a broader rule that provides express CRA consideration
for activities that are not NSP-eligible and/or are outside of geographies covered in NSP-targeted areas. Several other commenters
stated that the agencies should provide consideration for activities that are NSP-eligible, but are not specifically covered
in the underlying NSP plans. By contrast, six community development organizations that target low- and moderate-income communities
stated that donations of OREO in poor condition can carry associated costs and liability for a receiving organization. These
organizations recommended providing favorable CRA consideration for such donations only if they are consistent with local
and/or regional government or nonprofit plans and the donor institutions fund associated costs, such as demolition and environmental
remediation costs. The agencies will consider the credit given to donations of OREO as part of their general regulatory review
of CRA regulations.

The agencies have considered the comments on the scope of the “community development” definition and are adopting the revision
to the definition as proposed, with only minor changes to statutory references. This revision to the definition of “community
development” is narrowly tailored to encourage financial institutions to support stabilization efforts in targeted areas identified
by the Federal government as having greater need for assistance as a result of the foreclosure crisis. Commenters opposed
limiting favorable CRA consideration to those NSP-eligible activities expressly described in NSP plans or to those funded
by NSP programs, as discussed above. The agencies note that the final rule allows institutions to receive CRA consideration
for supporting, enabling, or facilitating NSP-eligible activities in the geographic areas targeted in NSP program plans.

As noted above, the agencies believe that allowing institutions to receive CRA consideration for supporting, enabling, or
facilitating NSP-eligible activities in NSP-targeted areas will help to leverage scarce government funding to those designated
areas with the greatest need for such activities. Finalization of this rule will provide an immediate incentive for institutions
to undertake activities that will support the stabilization of areas targeted for NSP-initiatives.

In addition, the agencies note that, under the current CRA rules and interagency guidance, CRA consideration is already available
for some neighborhood stabilization activities. First, revitalization and stabilization activities in low- and moderate-income
geographies or in distressed or underserved nonmetropolitan middle-income geographies receive positive consideration under
the existing CRA rules, regardless of whether these areas are targeted areas under the NSP. (13) Similarly, foreclosure prevention programs may also receive positive CRA consideration, for example, if they are part of a
loan program that is designed to provide sustainable relief to homeowners facing foreclosure on their primary residences or
if they help to revitalize or stabilize low- or moderate-income geographies. (14) In addition, below-market sales and donations of OREO properties to nonprofit organizations, consistent with safe and sound
banking operations, also may receive positive consideration under the existing CRA rules. The CRA rules provide favorable
consideration for grants, which would include an in-kind donation of property. If these grants have a primary purpose of community
development, such as to provide affordable housing to low- and moderate-income individuals, they also would already receive
positive CRA consideration as a qualified investment. (15) Further, favorable CRA consideration is given for technical assistance about financial services to community-based groups,
local or Tribal government agencies, or intermediaries that help to meet the credit needs of low- and moderate-income individuals
or small businesses and farms. (16)

Favorable CRA consideration also is available for certain activities involving multifamily housing. (17) In addition, economic development activities not directly related to housing may qualify for favorable CRA consideration.
For example, “qualified investments” for which favorable CRA consideration may be given include investments, grants, deposits,
or shares in or to organizations supporting activities essential to the capacity of low- and moderate-income individuals or
geographies to utilize credit or to sustain economic development. (18)

Finally, the agencies note that they have begun a regulatory review of the CRA rules generally, and as part of that regulatory
review, the agencies will carefully consider any comments received through this rulemaking that may recommend further changes
to the definition of “community development.” (19)

Reference to Statutes Appropriating Funds to NSP: In the proposal, the regulatory text specifically referred to the two statutes that authorized funds under NSP1 and NSP2,
the HERA and the American Recovery and Reinvestment Act of 2009, respectively. As stated above, since the agencies issued
their proposal, Congress provided an additional $1 billion to the NSP under the Dodd-Frank Act. Based on this additional authorization
and the fact that the rule's reference to the NSP now covers any of that program's iterations (thus far NSP1, NSP2, and NSP3),
the agencies need to amend the final regulatory language to account for these funds. Rather than add a reference to the Dodd-Frank
Act, and thereafter amend the rule whenever a statute provides additional funds, the agencies have revised § __.12(g)(5)(i)
to refer solely to HERA. (20)

Sunset: The duration of the agencies' proposed rule was generally linked to the duration of the NSP. Under NSP1, grantees must expend
NSP funds within four years of the date the grant is awarded. Under NSP2, grantees have three years from that date to fully
spend the grant, and HUD was required to obligate all funds appropriated for NSP2 in February 2010. The funds appropriated
in the Dodd-Frank Act also must be fully expended by grantees within three years after they receive their grants, and HUD
is required to obligate all funds appropriated by the Dodd-Frank Act by July 2011. Since the NSP does not have a termination
date, Congress could appropriate additional funds for the program in future years. Therefore, a specific termination date
for the regulatory provision was not proposed. Instead, the proposed rule provided that NSP-eligible activities would receive
favorable consideration under the new rule if conducted no later than two years after the last date appropriated funds for
the program are required to be spent by the grantees.

Most commenters supported the proposal to allow CRA consideration of qualifying loans, investments, and services that are
provided no later than two years after the last date appropriated funds for the program are required to be spent by grantees.
A few commenters stated that there should be no “sunset” date. These commenters asserted that need for NSP-eligible activities
will remain even after Federal funding is no longer available; continuing CRA consideration would encourage financial institutions
to help to meet those needs.

The agencies carefully considered these comments and are adopting the revision as proposed. The agencies believe that two
years after the last date appropriated funds for the program are required to be spent by grantees generally allows sufficient
time for institutions to engage in meaningful community development activities in NSP-targeted areas. As indicated in the
proposal, the agencies will provide reasonable advance notice to institutions in the
Federal Register
regarding termination of the rule once a certain date has been identified.

Benefit to Low-, Moderate-, and Middle-Income Communities: As noted above, the CRA rules expressly encourage activities that benefit low- or moderate-income individuals or geographies.
Nevertheless, to address certain adverse circumstances, the agencies have created limited exceptions to permit favorable consideration
of activities that benefit middle-income individuals and geographies in addition to low- and moderate-income individuals and
geographies. (21)

Most commenters supported the expansion to permit CRA consideration of activities that may benefit middle-

  income individuals and communities, consistent with the NSP program. Although a few of these commenters emphasized that the
  focus of CRA should continue to be on low- and moderate-income households and neighborhoods, the commenters supported the
  proposal to redefine “community development” to align with NSP-eligible activities in designated areas identified in plans
  approved by HUD.

After careful review of these comments and as proposed, the agencies are including activities that benefit middle-income individuals
and geographies among the activities for which the agencies may provide favorable CRA consideration under the final rule.

Recognition of NSP-Eligible Activities Outside of Assessment Area(s): Under the current CRA rules, an institution is evaluated primarily on how it helps meet the credit and community development
needs of its CRA assessment area(s). However, many foreclosed properties owned by an institution may be located in areas that
are outside of the institution's CRA assessment area(s). As noted in the proposal, restricting CRA consideration of NSP-eligible
activities to an institution's assessment area(s) may not fully help to promote Congress's objectives for the NSP. Therefore,
the proposed rule provided that an institution that has adequately addressed the community development needs of its assessment
area(s) may receive favorable consideration for NSP-eligible activities under this provision that are outside of its assessment
area(s). The agencies also specifically asked for comment on this aspect of the proposal.

The commenters that addressed this issue unanimously supported allowing CRA consideration for NSP projects outside of an institution's
assessment area(s), provided the institution has met the community development needs within its assessment area(s). Several
commenters suggested that the agencies should issue additional guidance on, for example, how financial institutions may demonstrate
that they have adequately met the needs in their assessment area(s) and how outside-the-assessment area activities will be
allocated toward an institution's State-wide and overall CRA ratings. One financial institution trade association suggested
that community banks receive favorable CRA consideration for NSP-eligible activities in the banks' assessment areas whether
or not the area is in an NSP-targeted area.

The agencies carefully considered these comments and are adopting the rule as proposed. The final rule, like the proposal,
allows institutions to receive favorable consideration for activities that benefit low-, moderate-, and middle-income individuals
and geographies in the institution's assessment area(s) or areas outside the bank's assessment area(s) provided the institution
has adequately addressed the community development needs of its assessment area(s). To the extent additional guidance may
be needed on this provision, the agencies will consider it in connection with a future revision of the Interagency Questions
and Answers Regarding Community Reinvestment or examination procedures.

Potential Costs and Benefits: Only five commenters directly responded to the agencies' request for comment on the potential costs and benefits of the proposed
rule, if adopted. Most of these commenters predicted there would be only negligible costs associated with the proposed revision,
typically in the form of additional administrative costs, including capturing loan data, and training. These commenters generally
thought that the rule would result in some benefit to communities affected by the foreclosure crisis. A trade association
of community banks and a financial institution stated that they anticipate additional administrative costs for loan documentation
and reporting and for staff training if the proposed rule is adopted but did not estimate those costs.

Effect on an Institution's Decisions about Community Development Activities: The agencies also asked for specific comment about whether and the extent to which the proposed rule, if adopted, would affect
an institution's decisions about the amount, type, and location of community development loans, investments, and services
it will provide. Four of the five commenters that addressed this request for comment believed that the rule would affect positively
an institution's decisions about the types and amount of community development activities it will provide. The other commenter
stated that the rule would provide an incentive for institutions to engage in NSP-eligible activities, but might not substantially
alter institutions' general CRA decision-making.

Effective Date

The final rule becomes effective 30 days after publication in the
Federal Register.
That effective date is consistent with section 553 of the Administrative Procedure Act, which provides that a substantive
rule may not be made effective until 30 days after publication in the
Federal Register,
with specified exceptions. 5 U.S.C. 553(d). Section 302 of the Riegle Community Development and Regulatory Improvement Act
of 1994 (CDRI) provides that regulations prescribed by a Federal banking agency that contain additional reporting, disclosure,
or other new requirements on insured depository institutions shall take effect on the first day of a calendar quarter that
begins on or after the date on which the regulations are published in final form, with certain exceptions. 12 U.S.C. 4802(b).
Section 302 of the CDFR does not apply to this final rule because the final rule does not prescribe additional reporting,
disclosures, or other new requirements on insured depository institutions. As discussed in detail above in the
SUPPLEMENTARY INFORMATION,
the final rule instead expands the types of activities for which such institutions may receive favorable CRA consideration.

Regulatory Analysis

Paperwork Reduction Act

In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. Ch. 3506; 5 CFR part 1320 Appendix A.1), each agency reviewed
its final rule and determined that there are no collections of information. The final rule would expand the types of activities
that qualify for CRA consideration, if an institution chooses to engage in them, but it would not impose any new requirements,
including paperwork requirements. The overall cost of this final rule is expected to be negligible, at most. The amendments
could have a negligible effect on burden estimates for existing information collections, including recordkeeping requirements
for community development loans.

Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) generally requires agencies that are issuing a final rule to prepare and make available
for public comment a regulatory flexibility analysis that describes the impact of the final rule on small entities. (22) The RFA provides that agencies are not required to prepare and publish a regulatory flexibility act analysis if the agencies
certify that the final rule will not, if promulgated, have a significant economic impact on a substantial number of small
entities. (23) The Small Business Administration (SBA) has defined “small entities” for banking purposes as a bank or savings association
with $175 million or less in

  assets. [(24)]() 13 CFR 121.201. Each agency has reviewed the impact of this final rule on the small entities subject to its regulation and
  supervision and addresses the RFA requirements, as appropriate, below.

OCC: The OCC has reviewed the final amendments to Part 25. The final rule would expand the definition of the term “community development,”
which is applied in the CRA regulations' performance tests. However, the final rule does not impose new requirements on small
entities because the CRA performance test for small entities (as defined above) does not require community development activities.
Rather, the final rule reduces burden by expanding the types of community development activities for which institutions may
receive CRA consideration. Only 605 national banks are small entities based on the SBA's general principles of affiliation
(13 CFR 121.103(a)) and the size threshold for commercial banks and trust companies. The OCC reviewed national banks with
assets of less than $175 million that are evaluated under the lending, investment, and service tests, which are normally applicable
to large banks, the community development test, which is applicable to wholesale and limited purpose banks, and the community
development performance factor applicable to intermediate small banks. As of June 30, 2010, only 13 of the 605 national banks
that are small entities would be evaluated on their community development activities under these examination types. The rest
would be evaluated under the small bank examination procedures, which do not require consideration of community development
activities. The OCC has determined and therefore certifies, pursuant to section 605(b) of the RFA, that the final rule will
not have a significant economic impact on a substantial number of small entities.

OTS: The OTS has reviewed the final amendments to Part 563e. The final rule would expand the definition of the term “community
development,” which is applied in the CRA regulations' performance tests. However, the final rule does not impose new requirements
on small entities because the CRA performance test for small entities (as defined above) does not require community development
activities. Rather, the final rule reduces burden by expanding the types of community development activities for which institutions
may receive CRA consideration. The Small Business Administration (SBA) has defined “small entities” for banking purposes as
a savings association with $175 million or less in assets. See 13 CFR 121.201. As of September 23, 2010, only 361 OTS-regulated thrifts are small entities with assets of $175 million or
less. However, also as of that date, only three of those small savings associations are wholesale or limited purpose savings
associations whose community development activities would be evaluated as an automatic part of the CRA examination process.
Another three are special purpose savings associations not subject to CRA. The OTS has determined and therefore certifies,
pursuant to section 605(b) of the RFA, that the final rule will not have a significant economic impact on a substantial number
of small entities.

FDIC: The FDIC has reviewed the proposed amendments to part 345. The proposal does not impose new requirements on small entities
because the CRA performance test for small entities (as defined above) does not require community development activities.
Rather, the proposed rule reduces burden by expanding the types of community development activities for which institutions
may receive CRA consideration. As of June 30, 2010, FDIC regulated entities under the SBA's size criteria, with assets of
less than $175 million, totaled 2840. However, also as of that date, only 5 of those banks that are small entities would be
required to engage in community development activities under the examination types that include such consideration. The FDIC
has determined and therefore certifies, pursuant to section 605(b) of the RFA, that the final rule will not have a significant
economic impact on a substantial number of small entities.

Board: The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) requires an agency to perform an initial and final regulatory flexibility analysis on the impact a rule is expected
to have on small entities. The Small Business Administration has defined “small entities” for banking purposes as a banking
organization with $175 million or less in assets. See 13 CFR 121.201. The Board received no comments directly addressing the initial regulatory flexibility analysis. The Board
has prepared the following final regulatory flexibility analysis pursuant to section 604 of the RFA.

1. Statement of the need for, and objectives of, the final rule. As explained above in the supplementary information, the Board believes that it is desirable to expand eligibility for favorable
   CRA consideration to NSP-eligible activities and areas, in order to provide financial institutions incentives to leverage
   NSP funding by providing loans, investments, and services in areas with high foreclosure or vacancy rates. The final rule
   expands the definition of the term “community development,” which is applied in the CRA regulations' performance tests. However,
   it does not impose new requirements on small entities because the CRA performance test for small entities does not require
   community development activities. Rather, the final rule expands the types of community development activities for which institutions
   may receive CRA consideration.

2. Summary of the significant issues raised by public comment in response to the Board's initial analysis, the Board's assessment
   of such issues, and a statement of any changes made as a result of such comments. The Board published an initial regulatory flexibility analysis in connection with the proposed rule and requested comment
   on the effect of the proposed rule on small entities. See 75 FR 36016, 36020 (Jun. 24, 2010). The Board received no comments specifically addressing the Board's initial regulatory
   flexibility analysis. A financial institution trade association and a bank stated that institutions that seek CRA consideration
   for covered activities under a final rule would incur administrative costs, such as costs for documentation of activities
   and training. Those commenters did not estimate those costs or indicate that they especially affect small entities. The Board
   made no changes to the proposed rule based on public comment regarding costs associated with the final rule, because entities
   are not required to seek CRA consideration for covered activities under the final rule. Rather, entities may continue to seek
   CRA consideration for activities included in the definition of “community development” prior to the expansion of that definition
   by this final rule.

3. Small entities affected by the final rule. As of June 2010, the Board supervised 392 banking organizations that meet the definition of small entities, all of which are
   subject to the final rule.

4. Recordkeeping, reporting, and compliance requirements. The final rule does not impose any new recordkeeping or reporting requirements, as the final rule does not require supervised
   banking organizations to engage in community development activities. Institutions that elect to seek credit for community
   development activities

   under the expanded “community development” definition under the final rule will need to maintain documentation regarding those
   activities.

5. Significant alternatives to the final revisions. Given that the final rule does not require institutions to fund NSP-eligible activities and reduces burdens and restrictions
   on CRA funding in general, the Board does not believe any other alternatives would accomplish the stated objectives while
   minimizing burden of the final rule. The legal basis of the final rule is in CRA Section 806, 12 U.S.C. 2905. The final rule
   expands the definition of the term “community development,” which is applied in the CRA regulations' performance tests. However,
   it does not impose new requirements on small entities because the CRA performance test for small entities does not require
   community development activities. Rather, the final rule expands the types of community development activities for which institutions
   may receive CRA consideration.

OTS Executive Order 12866 Consideration

Pursuant to Executive Order 12866, OMB's Office of Information and Regulatory Affairs (OIRA) designated the proposed rule
to be significant but did not determine whether the proposal would have an annual effect on the economy of $100 million or
more. OTS solicited comment on the costs and benefits of the proposed rule, if adopted.

As summarized elsewhere in the
SUPPLEMENTARY INFORMATION
, five commenters directly addressed the issue. In general, these commenters predicted there would be only negligible costs
associated with the proposed revision, typically in the form of additional administrative costs, including capturing loan
data and training. A trade association of community banks and a financial institution stated that they anticipate additional
administrative costs for loan documentation and reporting and for staff training if the proposed rule is adopted but did not
estimate those costs. Another financial institution indicated that since no new reporting requirements would be imposed, it
did not foresee any incremental costs beyond the cost of doing business. Similarly, a trade association for home builders
indicated the costs would be negligible since the rule would not place any new requirements on financial institutions. A State
banking department said there appears to be few, if any, costs.

Even the potential negligible costs would only apply to those savings associations that choose to seek CRA consideration for
engaging in NSP-eligible activities under the new provision promulgated in today's final rule. As discussed elsewhere in the

  SUPPLEMENTARY INFORMATION
  , including the Regulatory Flexibility Act Analysis, many savings associations are not evaluated for community development
  activities. Small savings associations (currently defined as those with under $274 million in assets, 12 CFR 563e.12(u)(1))
  are only evaluated for community development under the small institution test “as appropriate,” in other words, when it is
  necessary to determine if they meet or exceed the standards for a satisfactory rating or at their request. 12 CFR part 563e;
  Questions and Answers, 75 FR at 11662 (Q&A § __.26(b)-2). Currently, 471 of the 741 savings associations are small.

Further, as discussed elsewhere in the
SUPPLEMENTARY INFORMATION
, even without the new provision in today's final rule, CRA consideration has already been available for some neighborhood
stabilization activities under the pre-existing CRA rules and interagency guidance. Revitalization and stabilization activities
in low- and moderate-income geographies or in distressed or underserved nonmetropolitan middle-income geographies receive
positive consideration under the existing CRA rules, regardless of whether these areas are targeted areas under the NSP. Foreclosure
prevention programs may also receive positive CRA consideration, for example, if they are part of a loan program that is designed
to provide sustainable relief to homeowners facing foreclosure on their primary residences or if they help to revitalize or
stabilize low- or moderate-income geographies. Below-market sales and donations of OREO properties to nonprofit organizations,
consistent with safe and sound banking operations, also may receive positive consideration under the existing CRA rules. The
CRA rules provide favorable consideration for grants, which would include an in-kind donation of property; if these grants
have a primary purpose of community development, such as to provide affordable housing to low- and moderate-income individuals,
they also would already receive positive CRA consideration as a qualified investment. Favorable CRA consideration is given
for technical assistance about financial services to community-based groups, local or Tribal government agencies, or intermediaries
that help to meet the credit needs of low- and moderate-income individuals or small businesses and farms. Favorable CRA consideration
is available for certain activities involving multifamily housing. Economic development activities not directly related to
housing may qualify for favorable CRA consideration.

These commenters generally thought that the rule would result in some benefit to communities affected by the foreclosure crisis.
Four of the five commenters that addressed the issue believed that the rule would affect positively an institution's decisions
about the types and amount of community development activities it will provide. These comments were from a trade association
for State banking supervisors, a State banking department, a trade association for home builders, and a financial institution.
The other commenter, another financial institution, indicated that the rule would provide an incentive for institutions to
engage in NSP-eligible activities, but might not substantially alter institutions' general CRA decision-making.

As discussed elsewhere in the
SUPPLEMENTARY INFORMATION
, the duration of the final rule is generally linked to the duration of the NSP. Under NSP1, grantees must expend NSP funds
within four years of the date the grant is awarded. Under NSP2, grantees have three years from that date to fully spend the
grant, and HUD was required to obligate all funds appropriated for NSP2 in February 2010. The funds appropriated in the Dodd-Frank
Act also must be fully expended by grantees within three years after they receive their grants, and HUD is required to obligate
all funds appropriated by the Dodd-Frank Act by July 2011. The final rule provides that NSP-eligible activities will receive
favorable consideration under the new rule if conducted no later than two years after the last date appropriated funds for
the program are required to be spent by the grantees. After that date, the rule will cease to apply.

In light of the foregoing, OIRA has designated the final rule to be significant but not to have an annual effect on the economy
of $100 million or more.

OCC and OTS Unfunded Mandates Reform Act of 1995 Determination

Section 202 of the Unfunded Mandates Reform Act of 1995 (Unfunded Mandates Act) (2 U.S.C. 1532) requires that covered agencies
prepare a budgetary impact statement before promulgating a rule that includes any Federal mandate that may result in

  the expenditure by State, local, and Tribal governments, in the aggregate, or by the private sector, of $100 million or more
  in any one year. If a budgetary impact statement is required, section 205 of the Unfunded Mandates Act also requires covered
  agencies to identify and consider a reasonable number of regulatory alternatives before promulgating a rule. The OCC and the
  OTS have determined that this final rule will not result in expenditures by State, local, and Tribal governments, or by the
  private sector, of $100 million or more in any one year. Accordingly, neither agency has prepared a budgetary impact statement
  or specifically addressed the regulatory alternatives considered.

The Treasury and General Government Appropriations Act, 1999—Assessment of Impact of Federal Regulation on Families

The FDIC has determined that this final rule will not affect family well-being within the meaning of section 654 of the Treasury
and General Government Appropriations Act, enacted as part of the Omnibus Consolidated and Emergency Supplemental Appropriations
Act of 1999, Public Law 105-277 (5 U.S.C. 601 note).

List of Subjects

Community development, Credit, Investments, National banks, Reporting and recordkeeping requirements.

Banks, Banking, Community development, Credit, Investments, Reporting and recordkeeping requirements.

Banks, Banking, Community development, Credit, Investments, Reporting and recordkeeping requirements.

Community development, Credit, Investments, Reporting and recordkeeping requirements, Savings associations.

Regulatory Text

Department of the Treasury

Office of the Comptroller of the Currency

12 CFR Chapter I

Authority and Issuance

For the reasons discussed in the joint preamble, the Office of the Comptroller of the Currency amends part 25 of chapter I
of title 12 of the Code of Federal Regulations as follows:

PART 25—COMMUNITY REINVESTMENT ACT AND INTERSTATE DEPOSIT PRODUCTION REGULATIONS

1. The authority citation for part 25 continues to read as follows:

Authority:

12 U.S.C. 21, 22, 26, 27, 30, 36, 93a, 161, 215, 215a, 481, 1814, 1816, 1828(c), 1835a, 2901 through 2907, and 3101 through
3111.

1. In § 25.12:

a. Republish the introductory text of paragraph (g);

b. Remove the word “or” at the end of paragraph (g)(3);

c. Remove the period at the end of paragraph (g)(4)(iii)(B) and add “; or” in its place; and

d. Add a new paragraph (g)(5).

The republication and addition read as follows:

§ 25.12 Definitions.

---

(g) Community development means:

---

(5) Loans, investments, and services that—

(i) Support, enable or facilitate projects or activities that meet the “eligible uses” criteria described in Section 2301(c)
of the Housing and Economic Recovery Act of 2008 (HERA), Public Law 110-289, 122 Stat. 2654, as amended, and are conducted
in designated target areas identified in plans approved by the United States Department of Housing and Urban Development in
accordance with the Neighborhood Stabilization Program (NSP);

(ii) Are provided no later than two years after the last date funds appropriated for the NSP are required to be spent by grantees;
and

(iii) Benefit low-, moderate-, and middle-income individuals and geographies in the bank's assessment area(s) or areas outside
the bank's assessment area(s) provided the bank has adequately addressed the community development needs of its assessment
area(s).

---

Federal Reserve System

12 CFR Chapter II

Authority and Issuance

For the reasons set forth in the joint preamble, the Board of Governors of the Federal Reserve System amends part 228 of chapter
II of title 12 of the Code of Federal Regulations as follows:

PART 228—COMMUNITY REINVESTMENT (REGULATION BB)

1. The authority citation for part 228 continues to read as follows:

Authority:

12 U.S.C. 321, 325, 1828(c), 1842, 1843, 1844, and 2901 et seq.

1. In § 228.12:

a. Republish the introductory text of paragraph (g);

b. Remove the word “or” at the end of paragraph (g)(3);

c. Remove the period at the end of paragraph (g)(4)(iii)(B) and add “; or” in its place; and

d. Add a new paragraph (g)(5).

The republication and addition read as follows:

§ 228.12 Definitions.

---

(g) Community development means:

---

(5) Loans, investments, and services that—

(i) Support, enable or facilitate projects or activities that meet the “eligible uses” criteria described in Section 2301(c)
of the Housing and Economic Recovery Act of 2008 (HERA), Public Law 110-289, 122 Stat. 2654, as amended, and are conducted
in designated target areas identified in plans approved by the United States Department of Housing and Urban Development in
accordance with the Neighborhood Stabilization Program (NSP);

(ii) Are provided no later than two years after the last date funds appropriated for the NSP are required to be spent by grantees;
and

(iii) Benefit low-, moderate-, and middle-income individuals and geographies in the bank's assessment area(s) or areas outside
the bank's assessment area(s) provided the bank has adequately addressed the community development needs of its assessment
area(s).

---

Federal Deposit Insurance Corporation

12 CFR Chapter III

Authority and Issuance

For the reasons set forth in the joint preamble, the Board of Directors of the Federal Deposit Insurance Corporation amends
part 345 of chapter III of title 12 of the Code of Federal Regulations as follows:

PART 345—COMMUNITY REINVESTMENT

1. The authority citation for part 345 continues to read as follows:

Authority:

12 U.S.C. 1814-1817, 1819-1920, 1828, 1831u and 2901-2907, 3103-3104, and 3108(a).

1. In § 345.12:

a. Republish the introductory text of paragraph (g);

b. Remove the word “or” at the end of paragraph (g)(3);

c. Remove the period at the end of paragraph (g)(4)(iii)(B) and add “; or” in its place; and

d. Add a new paragraph (g)(5).

The republication and addition read as follows:

§ 345.12 Definitions.

---

(g) Community development means:

---

(5) Loans, investments, and services that—

(i) Support, enable or facilitate projects or activities that meet the “eligible uses” criteria described in Section 2301(c)
of the Housing and Economic Recovery Act of 2008 (HERA), Public Law 110-289, 122 Stat. 2654, as amended, and are conducted
in designated target areas identified in plans approved by the United States Department of Housing and Urban Development in
accordance with the Neighborhood Stabilization Program (NSP);

(ii) Are provided no later than two years after the last date funds appropriated for the NSP are required to be spent by grantees;
and

(iii) Benefit low-, moderate-, and middle-income individuals and geographies in the bank's assessment area(s) or areas outside
the bank's assessment area(s) provided the bank has adequately addressed the community development needs of its assessment
area(s).

---

Department of the Treasury

Office of Thrift Supervision

12 CFR Chapter V

For the reasons set forth in the joint preamble, the Office of Thrift Supervision amends part 563e of chapter V of title 12
of the Code of Federal Regulations as follows:

PART 563e—COMMUNITY REINVESTMENT

1. The authority citation for part 563e continues to read as follows:

Authority:

12 U.S.C. 1462a, 1463, 1464, 1467a, 1814, 1816, 1828(c), and 2901 through 2907.

1. In § 563e.12:

a. Republish the introductory text of paragraph (g);

b. Remove the word “or” at the end of paragraph (g)(3);

c. Remove the period at the end of paragraph (g)(4)(iii)(B) and add “; or” in its place; and

d. Add a new paragraph (g)(5).

The republication and addition read as follows:

§ 563e.12 Definitions.

---

(g) Community development means:

---

(5) Loans, investments, and services that—

(i) Support, enable or facilitate projects or activities that meet the “eligible uses” criteria described in Section 2301(c)
of the Housing and Economic Recovery Act of 2008 (HERA), Public Law 110-289, 122 Stat. 2654, as amended, and are conducted
in designated target areas identified in plans approved by the United States Department of Housing and Urban Development in
accordance with the Neighborhood Stabilization Program (NSP);

(ii) Are provided no later than two years after the last date funds appropriated for the NSP are required to be spent by grantees;
and

(iii) Benefit low-, moderate-, and middle-income individuals and geographies in the savings association's assessment area(s)
or areas outside the savings association's assessment area(s) provided the savings association has adequately addressed the
community development needs of its assessment area(s).

---

Dated: December 8, 2010. John Walsh, Acting Comptroller of the Currency. By order of the Board of Governors of the Federal Reserve System, December 13, 2010. Robert deV. Frierson, Deputy Secretary of the Board. Dated at Washington, DC, this 14th day of December 2010. Federal Deposit Insurance Corporation.

Valerie J. Best, Assistant Executive Secretary. Dated: December 9, 2010. By the Office of Thrift Supervision.

John E. Bowman, Acting Director. [FR Doc. 2010-31818 Filed 12-17-10; 8:45 am] BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P; 6720-01-P

Footnotes

(1) 12 U.S.C. 2903.

(2) See 12 CFR parts 25, 228, 345, and 563e.

(3) See “Neighborhood Stabilization Grants,” http://www.hud.gov/offices/cpd/communitydevelopment/programs/neighborhoodspg/nsp1.cfm.

(4) See “Neighborhood Stabilization Program 2,” http://www.hud.gov/offices/cpd/communitydevelopment/programs/neighborhoodspg/arrafactsheet.cfm.

(5) 74 FR 21377 (May 7, 2009); 73 FR 58330 (Oct. 6, 2008).

(6) HUD published formula allocations and program requirements for NSP3 grants on October 19, 2010. See 75 FR 64322 (Oct. 19, 2010).

(7) NSP2 and NSP3 funds for redevelopment of demolished or vacant properties may be used only for housing.

(8) Section 1497 of the Dodd-Frank Act amended Section 2301(f)(3)(A) of HERA. Prior to this amendment, applicable to NSP1 and
NSP2, not less than 25 percent of funds had to be used “for the purchase and redevelopment of abandoned or foreclosed homes
and residential properties that will be used” to house individuals and families whose incomes do not exceed 50 percent of
area median income.

(9) 75 FR 36016 (Jun. 24, 2010).

(10) 70 FR 44256 (Aug. 2, 2005), and 71 FR 18614 (Apr. 12, 2006).

(11) See HUD, NSP Frequently Asked Questions, http://www.hud.gov/offices/cpd/communitydevelopment/programs/neighborhoodspg/pdf/nsp_faq_formula_allocation.pdf.

(12) The Board also received over 650 other comments that stated that banks should not receive an “outstanding” rating if they
contributed to economic decline and should assist their communities, should not be allowed to pick the geographic area or
affiliates considered, and should get a “failing” rating if they discriminate against African-American and Latino communities.

(13) 12 CFR 25.12(g)(4), 228.12(g)(4), 345.12(g)(4), and 563e.12(g)(4).

(14) Interagency Questions and Answers Regarding Community Reinvestment (Questions and Answers), 75 FR 11642, 11647, 11650-51,
11654-55 (Mar. 11, 2010) (Q&As § .12(g)(4)(i)-1, § .12(i)-3, and § __.22(a)-1).

(15) Questions and Answers, 75 FR at 11652-53 (Q&A § __.12(t)-5).

(16) Questions and Answers, 75 FR at 11650-51, 11657 (Q&As § .12(i)-1, § .12(i)-3, and § __.22(b)(5)-1).

(17) Under the agencies' current CRA regulations, “community development” includes activities related to affordable multifamily
housing, and a “community development loan” includes construction and permanent financing of multifamily rental property serving
low- and moderate-income persons. 12 CFR 25.12(g)(1), 228.12(g)(1), 345.12(g)(1), and 563e.12(g)(1); Questions and Answers,
75 FR at 11648 (Q&A § .12(h)-1). Further, a “home mortgage loan” includes a multifamily dwelling loan, and a “qualified
investment” includes an investment, grant, deposit, or share in organizations engaged in rehabilitating or constructing affordable
multifamily rental housing. Questions and Answers, 75 FR at 11651-52 (Q&As § .12(l)-1 and § __.12(t)-4).

(18) Questions and Answers, 75 FR at 11652 (Q&A § __.12(t)-4).

(19) See 75 FR 35686 (Jun. 23, 2010).

(20) In the proposed rule text, the agencies referred to Section 2301(c)(3) of the HERA with regard to that provision's NSP “eligible
uses” definition. Section 2301(c)(3) was changed to 2301(c)(4) in the Helping Families Save Their Homes Act of 2009, Public
Law 111-22, § 105(a) (2009). Rather than change the reference in the regulatory text, and risk having to change that reference
in the future, the agencies are using the term “eligible uses” and referring to Section 2301(c) generally.

(21) 70 FR 44256 (Aug. 2, 2005) and 71 FR 18614 (Apr. 12, 2006).

(22) See 5 U.S.C. 603(a).

(23) See 5 U.S.C. 605(b).

(24) A financial institution's assets are determined by averaging the assets reported on its four immediately preceding full quarterly
financial statements.

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