National Association of Mutual Insurance Companies Issues Public Comment to DOT

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WASHINGTON, Aug. 27 -- The National Association of Mutual Insurance Companies, Indianapolis, Indiana, has issued a public comment to the U.S. Department of Transportation. The comment was written and posted on Aug. 22, 2022.

The comment, on Docket No. NHTSA-2022-0021-0001, was sent to Steven Cliff, administrator of the National Highway Traffic Safety Administration.

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Community Capital Management, LLC is the registered investment adviser to the CCM Community Impact Bond Fund CRA Shares (CIB Fund), formerly known as the CRA Qualified Investment Fund. The primary purpose of the CIB Fund is consistent with the definition of community development in the implementing regulations for the Community Reinvestment Act (CRA). As such, the CIB Fund is an efficient and valuable option for insured depository institutions to make investments in their communities that qualify under the CRA. In fact, the CIB Fund has assisted approximately 500 banks with access to qualified community development investments, in a safe and sound manner, through over 1,630 CRA examinations since 1999. These banks range in size and sophistication from the largest money center banks to small community banks. We have a lengthy record of success - in over two decades we have invested approximately $13.3 billion in vital qualified community development investments on behalf of banks and other impact investors.

In addition, Community Capital Management, LLC is the sub-adviser for the Impact Shares Affordable Housing MBS ETF (OWNS). OWNS is an Exchange-traded Fund (ETF) that aims to reduce the racial wealth gap by expanding affordable housing options for minority and low-income families. OWNS invests in agency mortgage- backed securities (MBS) backed by pools of mortgage loans made to minority families, low- and moderate- income (LMI) families, and/or families who live in persistent poverty areas. Decades of economic inequality and discriminatory homeownership policies have created a prominent racial wealth gap. OWNS seeks to invest in the dignity of homeownership for these traditionally underserved communities.

CCM supports the NPR's focus on qualitative data metrics. With its purpose geared to investments that meet the primary purpose of community development, CCM tracks qualitative and quantitative data. For example, CCM on behalf of banks and other impact investors, has invested approximately $135 million in Persistent Poverty Counties and approximately $60 million in Difficult Development Areas since we began tracking these data metrics in early 2020. Additionally, CCM tracks investments across other statistical measures of poverty including, high poverty counties (defined as counties with a poverty rate greater than 20% per the FFIEC), Racially or Ethnically Concentrated Areas of Poverty (R/ECAPs), and other federal and state agency designations aimed to track investments benefiting people and communities of persistent poverty. We are pleased to report that CCM has invested approximately $2 billion in investments across these metrics.

As President and Chief Operating Officer for Community Capital Management, LLC, I appreciate the opportunity to provide substantive and constructive comments to assist the federal regulatory agencies in updating their CRA rules to improve consistency and transparency while not weakening the primary purpose of helping low- and moderate- income (LMI) people and communities access credit in a safe and sound manner.

I. Mortgage-backed securities, targeted to achieve support for affordable housing, are a valuable investment option for insured depository institutions.

Question 9. Should the proposed approach to considering mortgage-backed securities that finance affordable housing be modified to ensure that the activity is aligned with CRA's purpose of strengthening credit access for low- or moderate-income individuals? For example, should the agencies consider only the value of affordable loans in a qualifying mortgage-backed security, rather than the full value of the security? Should only the initial purchase of a mortgage-backed security be considered for affordable housing?

First, we support the agencies' recognition of the value of MBS, which help to meet the need for affordable housing, while improving lender and market liquidity.

The NPR preamble states that "Mortgage-backed securities qualify as an affordable housing activity provided they demonstrate a primary purpose of community development. Specifically, the security must primarily address affordable housing (including multifamily housing) of low- or moderate-income individuals. Thus, a mortgage-backed security that contains a majority of mortgages to low or moderate-income borrowers can qualify as an investment with a primary purpose of affordable housing."/i

Likewise, the proposed regulatory text defining the purpose of community development includes purchases of MBS that contain a majority of either loans financing housing for low- or moderate-income (LMI) individuals or loans financing housing that otherwise qualifies as affordable housing./ii

It has long been the practice of the regulators to consider targeted MBS as qualified investments provided the underlying mortgages were made to LMI borrowers./iii

In its "CRA Investment Handbook" the Federal Reserve Bank of San Francisco summarized the value of CRA-qualified MBS as follows:

"Mortgage-backed securities (MBSs) are a popular vehicle among financial institutions looking to invest in their own communities. Community Reinvestment Act (CRA) officers and other bank investment officers appreciate the return and safety that MBSs provide relative to other securities. They also appreciate that they are widely available compared with other qualified investments. Moreover, bankers today find that CRA-qualified MBS can typically provide a respite from concerns over the disruptions facing the mortgage markets and the questions surrounding the various mortgage products and underwriting standards.

For decades, mortgage-backed securities have played a crucial role in housing finance in the United States, making financing available to home buyers at lower costs and facilitating the availability of funds throughout the country. Investors include corporations, banks and thrifts, insurance companies, and pension funds. MBSs are popular because they provide a number of benefits to investors, including liquidity, yield, and capital management flexibility."/iv

Our twenty-plus years of experience have convincingly demonstrated that targeted MBS are a valuable option for banks to meet their CRA obligation. They are popular because they are high credit quality, widely available, and provide positive CRA consideration. In some assessment areas they may be the only option. Targeted MBS secured by individual mortgage loans to low- and moderate-income borrowers as well as those secured by mortgages that finance multi-family affordable housing for low- and moderate-income individuals are both valuable and important elements in addressing housing issues.

Second, we recognize that some stakeholders have voiced concern about the potential for banks to purchase MBS just prior to their CRA examinations and then sell them shortly afterwards to another bank, which has little positive impact in their communities. We offer the following recommendations to address this concern, while retaining targeted MBS as a qualified community development investment.

Recommendations:

* Limit CRA consideration to primary-issuance MBS, whether purchased directly or through a fund that has purchased primary-issuance MBS

* Encourage banks to hold MBS, and other qualifying community development activities, for longer time periods by Including consideration of current book value of prior period qualifying community development activities

Question 4. In qualifying affordable rental housing activities in conjunction with a government program, should the agencies consider activities that provide affordable housing to middle-income individuals in high opportunity areas, in nonmetropolitan counties, or in other geographies?

We support the inclusion of activities that provide affordable housing to middle-income individuals in high opportunity areas, in nonmetropolitan counties, or in other geographies, including metropolitan areas. The extremely high cost of housing in a variety of geographies in our country is a relevant and important consideration. Indeed, the current interagency official CRA guidance includes CRA consideration for this activity in official interagency guidance via Question and Answer (Q&A) ___.12(g)-3, which states

Sec. ___.12(g)--3: Does the regulation provide flexibility in considering performance in high-cost areas?

A3. Yes, the flexibility of the performance standards allows examiners to account in their evaluations for conditions in high-cost areas. Examiners consider lending and services to individuals and geographies of all income levels and businesses of all sizes and revenues. In addition, the flexibility in the requirement that community development loans, community development services, and qualified investments have as their ''primary'' purpose community development allows examiners to account for conditions in high-cost areas. For example, examiners could take into account the fact that activities address a credit shortage among middle- income people or areas caused by the disproportionately high cost of building, maintaining or acquiring a house when determining whether an institution's loan to or investment in an organization that funds affordable housing for middle-income people or areas, as well as low- and moderate-income people or areas, has as its primary purpose community development. See also Q&A Sec. __.12(h)-8 for more information on ''primary purpose.''

II. Qualifying activities confirmation and illustrative list of activities

We support the agencies' proposal to establish a publicly available illustrative, non-exhaustive list of activities eligible for CRA community development consideration. Such a list should include not only examples of qualified activities, but guidance and examples related to documentation requirements, such as currently included in the Q&A. Although the Q&A provide excellent explanations and examples of qualifying activities, a user-friendly list would be most beneficial.

A well-constructed list would add value to the CRA rules and help banks meet their CRA obligations. It would be a welcome tool that would help alleviate some of the difficulty associated with the structure and organization of the Q&A. For example, the CIB Fund is a nationwide fund that provides positive CRA credit to hundreds of bank investors. These investors rely on the interagency Q&As for guidance, including discussions about

* the definition of community development [Q&A __.12(g)-1, __.12(g)-2, __.12(g)-3, __.12(g)-4];

* definition of qualified investment [Q&A __.12(t)-1, __.12(t)-2, __.12(t)-3];

* examples of qualified investments [Q&A __.12(t)-4];

* direct versus indirect investments [Q&A __.23(a) - 1];

* the efficiency and value of the use of nationwide funds [Q&A __. 23(a) - 2]; and

* documentation requirements for investments [Q&A__. 23(a) -2].

Recommendation: Ensure the list includes both examples of qualified investments in national funds and documentation requirements for such investments to

* To prevent doubt about the qualification, value, and existence of such investments to help banks meet their community development goals

* Reaffirm existing interagency guidance on documenting benefit to assessment areas, including the use of earmarking to benefit facility-based or deposit-based assessment areas

* Reinforce current exacting documentation standards, including earmarking specific securities for banks, which in turn supports and confirms qualified community development investments in nationwide CRA-

Question 32. What procedures should the agencies develop for accepting submissions and establishing a timeline for review?

A user-friendly process should be established to encourage financial institutions and other interested parties to provide information about qualifying activities. Requests must not be limited to banks as that likely would act as a deterrent to other interested parties that may be developing qualified, responsive, and/or innovative activities. Requests for confirmation should be reviewed and acted upon in an expeditious manner. In addition, the agencies should commit to a regular and timely review and update of this proposed list of qualified community development activities to ensure more transparency and to provide examples of new activities that will assist banks in meeting their CRA obligations.

Summary:

Bank investments in targeted MBS have contributed greatly to the tremendous success that is the CRA. Targeted MBS have significantly increased access to credit for affordable housing and provide investment liquidity in a safe and sound manner. CRA modernization should leverage that success, not jeopardize it.

Including affordable housing for middle-income borrowers in high-cost areas as a qualified activity would be consistent with the guidance in the current Q&A and should be favorably considered in geographies of all different income levels and in metropolitan and nonmetropolitan areas alike.

An illustrative, non-exhaustive public list of community development activities that meet the requirements for positive CRA consideration would be a welcome tool; it must be open to requests from any interested party and should include a process for regular, timely updates.

Thank you for considering these comments.

Sincerely,

Alyssa Greenspan

President and Chief Operating Officer

Community Capital Management, Inc.

i 87 FR 33884

ii 87 FR 34019

iii Sec. ___ .12(t)--2: Are mortgage-backed securities or municipal bonds ''qualified investments''? A2. As a general rule, mortgage- backed securities and municipal bonds are not qualified investments because they do not have as their primary purpose community development, as defined in the CRA regulations. Nonetheless, mortgage-backed securities or municipal bonds designed primarily to finance community development generally are qualified investments. Municipal bonds or other securities with a primary purpose of community development need not be housing- related. For example, a bond to fund a community facility or park or to provide sewage services as part of a plan to redevelop a low-income neighborhood is a qualified investment. Certain municipal bonds in underserved nonmetropolitan middle-income geographies may also be qualified investments. See Q&A Sec. ___.12(g)(4)(iii)-4. Housing-related bonds or securities must primarily address affordable housing (including multifamily rental housing) needs of low- or moderate-income individuals in order to qualify. See also Q&A Sec. ___ .23(b)-2.

iv CRA Investment Handbook Federal Reserve Bank of San Francisco https://community-wealth.org/sites/clone.community- wealth.org/files/downloads/tool-sf-fed-CRA-Handbook.pdf

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Original text here: https://downloads.regulations.gov/NHTSA-2022-0021-0008/attachment_1.pdf"