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2005 CRA Changes and the Intermediate Small Bank in Review
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A Look Inside

Is the ISB Exam Right for Your Bank?

FAQ About the ISB Exam

New CRA Help for Rural Communities

Rebuilding Communities After a Disaster

ISB Exam Links

Locating Eligible Distressed or Underserved Areas Links

2005 CRA Regulation Revision

2005 CRA Regulation Revision Q's and A's

CRA Consultations Available

This Just In…OCC’s Districts Report on New Investment Opportunities for Banks

CD Topics of Interest

Investment Resources for Part 24 Authority

Part 24 Resources on the Web

Common Part 24 Questions

Part 24 Embraces CRA Changes

CD Investment Precedent Letters

Investments in National/Regional Funds

Second Quarter 2006
Part 24 Investments

Regulation and CD-1 Form

New CRA Help for Rural Communities

by Stephanie Caputo, Community Development Expert, Community Affairs
CRA is supporting and encouraging a greater level of community development activity in rural communities than ever before.

CRA is supporting and encouraging a greater level of community development activity in rural communities than ever before.

Recognizing that rural areas have lending, investment, and service needs that are quite different from those of urban geographies, the federal banking and thrift regulatory agencies made a number of important changes last year in the Community Reinvestment Act (CRA)—including a revised definition of community development in rural areas. This expanded definition, which is applicable to institutions of all sizes, supports and encourages CRA-related activities in rural communities.

Just as importantly, the revised definition clarifies that bank efforts to revitalize or stabilize designated disaster areas also are eligible for CRA consideration. This change is especially significant in light of the economic devastation caused last year by hurricanes Katrina and Rita in Texas, Mississippi and Louisiana. (See “Rebuilding Communities After a Disaster.”)

Redefining Community Development

Under the new definition of community development—which now expands into rural and middle-income locales—banks have greater opportunities to provide qualifying loans, investments, and services to their assessment areas. Eligible activities are those that revitalize and stabilize these rural or “nonmetropolitan middle-income areas.”  These rural areas must be designated by the regulatory agencies as “distressed or underserved,” and some locations may qualify under both designations.

The revisions are intended most specifically to encourage community development activities in rural areas.  Qualifying rural geographies are described in the regulations as “distressed or underserved,” because this terminology more fully covers the eligible geographies that will be designated using objective criteria.

Activities that “revitalize or stabilize” under the broader definition of community development must benefit one of the following:

  • Low- and moderate-income (LMI) geographies.

  • Distressed or underserved nonmetropolitan middle-income geographies designated by federal bank and thrift regulators and based on two sets of criteria. The first criterion focuses on rates of poverty, unemployment, and population loss (measuring “distressed” areas), the second on population size, density, and dispersion (measuring “underserved” areas).  These criteria indicate a community may have difficulty meeting essential community needs.

  • Designated disaster area.  According to the final interagency guidance published in March 2006, this is a major disaster area designated by the federal government.  In particular, such disaster designations include major disaster declarations administered by the Federal Emergency Management Agency.

Distressed Geographies under CRA

The criteria for distressed geographies under the revised CRA enable a more careful targeting of rural middle-income tracts that are most in need of revitalization or stabilization.  An activity revitalizes or stabilizes a qualifying distressed geography if it helps to attract new, or retain existing, residents or businesses.  Also, an activity is presumed to revitalize or stabilize the area if it is consistent with a bona fide government revitalization or stabilization plan. Examiners will give greater weight to those activities that are most responsive to community needs, including the needs of LMI persons or neighborhoods.

One example of a qualifying activity would be the use of bank financing to attract a major new employer that would generate permanent job opportunities, which must include employment for LMI individuals.

Underserved Geographies Under CRA

The revised regulation also permits examiners to give consideration to activities undertaken in geographically remote and underpopulated areas, where basic needs are often unmet.  Some rural communities—although middle income and not necessarily in distress—have such small and sparse populations that they have difficulty financing the fixed costs of essential community needs, including infrastructure and community facilities.  In these underserved areas, residents might live far from population centers and have to travel long distances to reach certain facilities, such as hospitals, schools, and day care centers.

Bank financing for activities in eligible underserved areas generally will receive favorable consideration if the activities serve essential community needs, which must include the needs of LMI persons. Examples of qualifying projects include an industrial park for businesses whose employees include LMI individuals, or a new sewer line that serves community residents, including LMI residents.

The federal banking agencies have adopted a twelve-month “lag period” immediately after an eligible census tract is reclassified as no longer meeting the criteria for a distressed or underserved area.  This additional time would permit banks to plan and carry out activities that show responsiveness to local needs in these qualifying areas.  The extended window for CRA consideration also acknowledges that certain loans and investments may require an extended amount of time to put in place. 

Affordable Housing Activities

One thing that was not changed under the revised regulation was the definition of affordable housing. A bank activity that has the primary purpose of providing affordable housing to LMI individuals qualifies as community development regardless of its location.

Bank activity that provides housing for middle- or upper-income individuals may qualify as an activity that revitalizes or stabilizes an eligible distressed or underserved nonmetropolitan middle-income area as long as the housing directly helps in the revitalization or stabilization efforts by attracting new, or retaining existing, businesses or residents.  This type of activity also may qualify if it’s located in a designated disaster area and assists in the disaster recovery.

However, as we’ve discussed previously, activities that are most responsive to community needs—including the needs of LMI persons or neighborhoods—would receive greater weight in the CRA evaluation. A loan made solely to provide housing for middle- or upper-income persons in a community that is in need of financing for LMI housing receives significantly less weight if there is little or no long-term benefit to LMI individuals.  

Last year’s CRA revisions also expanded the range of qualified investments for distressed and underserved nonmetropolitan middle-income geographies, and for designated disaster areas.  All qualified investments made under 12 CFR 25.23 (CRA) are considered eligible public welfare investments under 12 CFR 24.3.  As such, these investments can be made under 12 CFR Part 24 investment authority.  (See “Part 24 Embraces Community Reinvestment Act Changes.”)

Locating Eligible Distressed or Underserved Areas

The federal banking agencies have published a list of qualifying distressed or underserved nonmetropolitan middle-income geographic areas on the Federal Financial Institutions Examination Council (FFIEC) Web site at agencies will annually review and update the list of eligible rural census tracts that are distressed or underserved and will indicate which census tracts are in their lag periods. Additional information about the data sources used in developing the list may also be found on the FFIEC Web site. Finally, reference maps reflecting the status of census tracts throughout the United States can be found at The FFIEC examination information page, which includes the list of official geographies as well as other CRA information, can be found at

To clarify the key regulatory changes, the agencies also issued companion interagency guidance on March 10, 2006, which can be found at .  The guidance contains a number of new Q&As that address the revised definition of “community development.” Bankers who want to gain a better understanding of the revised definition of “community development” in rural and disaster areas may contact their OCC examiner or District Community Affairs Officer.  (See “CRA Consultations Available.”)  They will work with bankers to help clarify community development activities and identify opportunities and needs in the banks’ assessment areas.  (See “Community Affairs Indexes: Articles and Opportunities on Community Development Topics of Interest.”)