Guarantees for bonds and notes issued for community or economic development purposes

The Community Development Banking and Financial Institutions Act of 1994 (12 U.S.C. 4701 et seq.) is amended by inserting after section 114 the following:

114A.

Guarantees for bonds and notes issued for community or economic development purposes

(a)

Definitions

In this section, the following definitions shall apply: (1)

Director

The term Director means the Director of the Community Development Financial Institutions Fund. (2)

Eligible community development financial institution

The term eligible community development financial institution means a community development financial institution that is organized as a private, not-for-profit association, or otherwise on a nonprofit basis, that has applied to an issuer for, or been granted by an issuer, a loan or note under the Program. (3)

Eligible community or economic development purpose

The term eligible community or economic development purpose— (A)means any purpose described in section 108(b); and (B)includes the provision of community or economic development in low-income or underserved rural areas. (4)

Guarantee

The term guarantee means a written agreement between the Secretary and a guaranteed note or bondholder, pursuant to which, the Secretary ensures repayment of the verifiable losses on any bond issue of the principal, interest, and call premium, if any, on the guaranteed notes or bonds of the issuer. (5)

Issuer

(A)

In general

The term issuer means a community development financial institution that has been approved by the Secretary to receive a guarantee under the Program, and that otherwise meets the qualification requirements of this section and the rules of the Secretary. (B)

Approval criteria for issuers

(i)

In general

The Secretary shall approve a community development financial institution for a guarantee under the Program in accordance with such terms and procedures as the Secretary establishes, by rule, for such purpose. (ii)

Terms and qualifications

For approval as an issuer under the Program, a community development financial institution shall— (I)have appropriate expertise, capacity, and experience, or otherwise be qualified to make loans for eligible community or economic development purposes; (II)provide to the Secretary an acceptable capital distribution plan that meets the requirements of this section; and (III)certify to the Secretary that the bonds or notes to be guaranteed are to be used for eligible community or economic development purposes. (C)

Department opinion; timing

(i)

Department opinion

Not later than 30 days after the date of a request by an issuer for approval of a guarantee under the Program, the General Counsel of the Fund shall provide to the Secretary an opinion regarding compliance by the issuer with the requirements of the Program under this section. (ii)

Timing

The Secretary shall approve or deny a guarantee under this section after consideration of the opinion provided to the Secretary under clause (i), and in no case later than 45 days after receipt of all required information is submitted to the Secretary with respect to a request for such guarantee. (6)

Loan

The term loan means any credit instrument that is extended under the Program for any eligible community or economic development purpose. (7)

Master servicer

(A)

In general

The term master servicer means any entity approved by the Secretary in accordance with subparagraph (B) to oversee the activities of servicers, as provided in subsection (g)(4). (B)

Approval criteria for master servicers

The Secretary shall approve or deny any application to become a master servicer under the Program not later than 30 days after the date on which all required information is submitted to the Secretary, based on the capacity and experience of the applicant in— (i)loan administration, servicing, and loan monitoring; (ii)managing regional or national loan intake, processing, or servicing operational systems and infrastructure; (iii)managing regional or national originator communication systems and infrastructure; (iv)developing and implementing training and other risk management strategies on a regional or national basis; and (v)compliance monitoring, investor relations, and reporting. (8)

Program

The term Program means the guarantee program for tax-exempt bonds and notes issued for eligible community or economic development purposes created by this section. (9)

Program administrator

The term program administrator means an entity designated by the issuer to perform various administrative duties, as provided in subsection (g)(2). (10)

Secretary

The term Secretary means the Secretary of the Treasury. (11)

Servicer

The term servicer means an entity designated by the issuer to perform various servicing duties, as provided in subsection (g)(3). (b)

Guarantees authorized

The Secretary shall guarantee payments on tax-exempt bonds or notes issued by any issuer approved for such purpose under subsection (a)(5)(B), if the proceeds of the bonds or notes are used in accordance with this section to make loans to eligible community development financial institutions— (1)for eligible community or economic development purposes; or (2)to refinance loans or notes issued for such purposes. (c)

Issuer requirements and authority

(1)

In general

The capital distribution plan required by subsection (a)(5)(B) shall reflect investment of not less than 90 percent of the principal amount of guaranteed bonds or notes in otherwise unencumbered loans for any eligible community or economic development purpose, measured annually, beginning at the end of year 1 of the Program. (2)

Relending account

Not more than 10 percent of the principal amount of guaranteed bonds or notes, multiplied by an amount equal to the outstanding principal balance of issued notes or bonds, minus the risk-share pool amount under subsection (e), may be held in a relending account and may be made available for new eligible community or economic development purposes. (3)

Limitations on unpaid principal balances

The unpaid principal balance of the issued bonds or notes that are guaranteed under the Program may not be used to pay fees, and shall be held in— (A)community or economic development loans; (B)a relending account, to the extent authorized under paragraph (2); or (C)a risk-share pool established under subsection (e). (4)

Repayment

If an issuer fails to meet the requirements of paragraph (1), not later than 30 days after the date on which such failure occurs, repayment shall be made on the issued bonds or notes to bring the issuer into compliance. (5)

Prohibited uses

The Secretary shall, by regulation— (A)prohibit, as appropriate, certain uses of amounts from the guarantee of a bond or note under the Program, including the use of such funds for political activities, lobbying, outreach, counseling services, or travel expenses; and (B)provide that the guarantee of a bond or note under the Program may not be used for salaries or other administrative costs of— (i)the issuer; or (ii)any recipient of amounts from the guarantee of a bond or note. (d)

Certain interest rate reductions authorized

An eligible community development financial institution or an issuer may use a bond or note issued under the Program, or the proceeds from a guarantee of such a bond or note, as applicable, to reduce the interest rate on a loan, if the loan is made by an issuer to an eligible community development financial institution for any community or economic development purpose. (e)

Risk-share pool

Each issuer shall, during the term of a guarantee provided under the Program, establish a risk-share pool, capitalized by an amount equal to not less than 3 percent of the guaranteed amount outstanding on the subject notes and bonds. (f)

Guarantees

(1)

In general

A guarantee issued under the Program shall— (A)be for the full amount of a bond or note, including the amount of principal, interest, and call premiums; (B)be fully assignable and transferable to the Federal Financing Bank or the capital market, on terms and conditions that are consistent with comparable Government-guaranteed bonds, and satisfactory to the Secretary; (C)represent the full faith and credit of the United States; and (D)have a final maturity date for the bonds not to exceed 40 years. (2)

Limitations

(A)

Annual number of guarantees

The Secretary shall issue not more than 5 guarantees in any calendar year under the Program. (B)

Guarantee amount

The Secretary may not guarantee any amount under the Program equal to less than $100,000,000, but the total of all such guarantees in any fiscal year may not exceed $1,000,000,000. (g)

Servicing of transactions

(1)

In general

To maximize efficiencies and minimize cost and interest rates, loans made under this section may be serviced by qualified program administrators, bond servicers, and a master servicer. (2)

Duties of program administrator

The duties of a program administrator shall include— (A)approving and qualifying eligible community development financial institution applications for participation in the Program; (B)compliance monitoring; (C)bond packaging in connection with the Program; and (D)all other duties and related services that are customarily expected of a program administrator. (3)

Duties of servicer

The duties of a servicer shall include— (A)billing and collecting loan payments; (B)initiating collection activities on past-due loans; (C)transferring loan payments to the master servicing accounts; (D)loan administration and servicing; (E)systematic and timely reporting of loan performance through remittance and servicing reports; (F)proper measurement of annual outstanding loan requirements; and (G)all other duties and related services that are customarily expected of servicers. (4)

Duties of master servicer

The duties of a master servicer shall include— (A)tracking the movement of funds between the accounts of the master servicer and any other servicer; (B)ensuring orderly receipt of the monthly remittance and servicing reports of the servicer; (C)monitoring the collection comments and foreclosure actions; (D)aggregating the reporting and distribution of funds to trustees and investors; (E)removing and replacing a servicer, as necessary; (F)loan administration and servicing; (G)systematic and timely reporting of loan performance compiled from all bond servicers’ reports; (H)proper distribution of funds to investors; and (I)all other duties and related services that are customarily expected of a master servicer. (h)

Fees

(1)

In general

An issuer that receives a guarantee issued under this section on a bond or note shall pay a fee to the Director, in an amount equal to 30 basis points of the amount of the unpaid principal of the bond or note guaranteed. (2)

Payment

An issuer shall pay the fee required under this subsection on a semiannual basis. (3)

Fund subaccount created

Fees collected under this subsection shall be— (A)deposited into a separate subaccount in the Fund; (B)awarded to eligible community development financial institutions through a competitive grant process, in accordance with sections 103(5) and 105 and regulations issued thereunder, or to an eligible community partnership, in accordance with sections 103(7) and 106 and regulations issued thereunder; (C)limited to eligible community or economic development purposes; and (D)committed for use by the Fund within 2 years of the date of receipt from the issuer. (i)

Authorization of appropriations

(1)

In general

There are authorized to be appropriated, such sums as are necessary to carry out this section. (2)

Use of fees

To the extent that the amount of funds appropriated for a fiscal year under paragraph (1) are not sufficient to carry out this section, the Director may use up to 20 percent of the fees collected under subsection (h) for the cost of providing guarantees of bonds and notes under this section before depositing the remainder of the fees into the Fund subaccount established under subsection (h). (j)

Administration

(1)

Regulations

Not later than 180 days after the date of enactment of this section, the Secretary shall promulgate regulations to carry out this section. (2)

Implementation

Not later than 240 days after the date of enactment of this section, the Secretary shall implement this section. (k)

Termination

This section is repealed, and the authority provided under this section shall terminate, on September 30, 2012.