Investing In Community Development

The implementation of the Community Reinvestment Act or CRA regulation has caused many bankers and lending institutions to explore their options with regard to being able to apply for qualified investments. A very real concern is whether or not certain investments will qualify under the new CRA. For some banks, the issue has been the source of a fair bit of confusion, with many of the guidelines being somewhat hard to understand. And while others have no trouble coming to terms with the legal requirements of investing in real estate properties for community development, there still remains the issue of finding deals that banks will want to invest in.

 

To address these concerns, many bankers have begun to explore their own investment initiatives that meet the specific needs of their communities and at the same time ensure a strong performance.

 

Investing in community development actually serves many purposes, not the least of which is bringing life back into neighborhoods that have fallen on hard times. On the part of banks, community development can result in numerous social benefits, help them earn substantial returns on their investments, and allow them to meet their CRA goals. All of these goals can be achieved through redevelopment bonds, equity investments in community banks, loan pool certificates, and grants that are given to local nonprofits organizations. It is important to realize however that meeting CRA goals will require a thorough understanding of what types of real estate opportunities qualify as investments.

 

The primary purpose of qualified investments has to be community development. This means that the funds invested funds must be used for affordable housing for low- and moderate-income buyers, community services that are specifically geared towards these buyers, to promote economic development by way of the financing of small businesses, or the revitalization of specific areas.

 

If the majority of the funds or the beneficiaries of a certain investment fits into any one of the above requirements, then that investment can be said to conform to the definition of community development. If on the other hand there is no clear cut majority, an investment will have to meet any one of the following requirements in order to qualify as community development:

 

• The      explicit intention of the investment is for community development
• The      investment is specifically designed for community development purposes
• It is      clear that the particular investment will meet the stated community      development goals.

 

It is important to note that it is the responsibility of each institution to show that a particular investment is a legal investment, membership share, grant, or deposit, and that community development is its primary goal. Upon the establishment of the investment’s primary purpose, this will be examined in order to determine their level of innovation and complexity. This is done by way of qualitative information, which in many cases involves comparing qualified investments to the other investments in a specific institution’s portfolio and to the types of investments made by similar institutions. One of the most important considerations in this regard is the type of investments that are most commonly seen in a specific bank’s assessment area.