Notice2023-14407
Capital Magnet Fund (CMF)
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 7, 2023
Issuing agencies
Treasury DepartmentCommunity Development Financial Institutions Fund
Abstract
The Community Development Financial Institutions Fund (CDFI Fund), Department of the Treasury requests comments from the public regarding methods by which it can enhance and improve the impact of the Capital Magnet Fund; streamline or minimize the administrative burden on Capital Magnet Fund applicants and award recipients; as well as safeguard public funds. Information provided in response to this Request will allow the CDFI Fund to consider the development of policies and programs that better support and expand Capital Magnet Fund activities to spur investment in affordable housing and related economic development efforts that serve low-income families and communities.
Full Text
<html>
<head>
<title>Federal Register, Volume 88 Issue 129 (Friday, July 7, 2023)</title>
</head>
<body><pre>
[Federal Register Volume 88, Number 129 (Friday, July 7, 2023)]
[Notices]
[Pages 43414-43416]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-14407]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Community Development Financial Institutions Fund
Capital Magnet Fund (CMF)
ACTION: Notice and request for information.
-----------------------------------------------------------------------
SUMMARY: The Community Development Financial Institutions Fund (CDFI
Fund), Department of the Treasury requests comments from the public
regarding methods by which it can enhance and improve the impact of the
Capital Magnet Fund; streamline or minimize the administrative burden
on Capital Magnet Fund applicants and award recipients; as well as
safeguard public funds. Information provided in response to this
Request will allow the CDFI Fund to consider the development of
policies and programs that better support and expand Capital Magnet
Fund activities to spur investment in affordable housing and related
economic development efforts that serve low-income families and
communities.
DATES: Written comments must be received on or before September 5,
2023.
ADDRESSES: You may submit comments via the Federal eRulemaking Portal:
<a href="http://www.regulations.gov">www.regulations.gov</a>. Follow the instructions on the website for
submitting comments. In general, all comments will be available for
inspection at <a href="http://www.regulations.gov">www.regulations.gov</a>. Comments, including attachments and
other supporting materials, are part of the public record. Do not
submit any information in your comments or supporting materials that
you consider confidential or inappropriate for public disclosure.
For further information, contact Andrew Schlack, Program Manager,
Capital Magnet Fund, CDFI Fund, 1500 Pennsylvania Avenue NW,
Washington, DC 20220, or by email at <a href="/cdn-cgi/l/email-protection#34575952745750525d1a40465155471a535b42"><span class="__cf_email__" data-cfemail="ff9c9299bf9c9b9996d18b8d9a9e8cd1989089">[email protected]</span></a>, and include
``CMF RFI'' in the subject line of the email. Other information
regarding the CDFI Fund and its programs may be obtained through the
CDFI Fund website at <a href="http://www.cdfifund.gov">www.cdfifund.gov</a>.
Note: Capitalized terms not defined in this Notice are defined
in the CMF Interim Rule (as amended February 8, 2016; 12 CFR part
1807).\1\
\1\ <a href="https://www.cdfifund.gov/sites/cdfi/files/documents/interim-rule-fr-2016-02132.pdf">https://www.cdfifund.gov/sites/cdfi/files/documents/interim-rule-fr-2016-02132.pdf</a>.
SUPPLEMENTARY INFORMATION:
I. Background
The Capital Magnet Fund (CMF) was established through the Housing
and Economic Recovery Act of 2008 (HERA), Public Law 110-289, section
1131. Per the statute, the allocations to the Capital Magnet Fund are
to be used to carry out a competitive grant program administered by the
CDFI Fund.
HERA requires Fannie Mae and Freddie Mac to set aside an amount
equal to 4.2 basis points for each dollar of their unpaid principal
balances of total new business purchases to be allocated to the Housing
Trust Fund (administered by the Department of Housing and Urban
Development) and the Capital Magnet Fund.
Through CMF, the CDFI Fund is authorized to make grants to
Certified Community Development Financial Institutions (CDFIs) and
Nonprofit Organizations (if one of their principal purposes is the
development or management of affordable housing). CMF Awards must be
used to attract private financing for and increase investment in: (1)
the Development, Preservation, Rehabilitation, and Purchase of
Affordable Housing for primarily Extremely Low-, Very Low-, and Low-
Income Families; and (2) Economic Development Activities which, In
Conjunction with Affordable Housing Activities, will implement a
Concerted Strategy to stabilize or revitalize a Low-Income or
Underserved Rural Area.
II. Purpose of This Request for Information
The purpose of this Request for Information (RFI) is to solicit
public input related to CMF. Specifically, the goals of this RFI are:
(1) to clarify terms, concepts, and requirements of the CMF program to
improve CMF Recipients' understanding of their obligations and
requirements under the program; (2) to ensure the CMF Program
requirements adequately address activities and current business
practices in the affordable housing industry; (3) to identify
opportunities to reduce the burden of administering CMF Awards for CMF
Recipients while ensuring accountability; (4) to identify opportunities
to better align the CMF program with the rules, terms, practices, and
definitions of other significant federal funding sources for affordable
housing, as a way to facilitate compatibility and reduce CMF Recipient
burden; and (5) to determine how the CMF Program can better promote and
incorporate policy priorities such as economic development in
conjunction with affordable housing and affordable homeownership.
III. Specific Information Requested
A. Facilitate CMF Alignment with Other Federal Affordable Housing
Programs: With respect to the financing of affordable housing, CMF is
often an integral part of project financing (the capital stack), along
with capital generated or received through other federal programs. To
help reduce Recipient reporting burden and to ease the administration
of CMF Awards, the CDFI Fund is soliciting public input on areas where
CMF can better align with other federal programs.
1. Using CMF with other federal programs in the same project(s):
The CDFI Fund is considering an approach where certain CMF Affordable
Housing projects (funded under designated federal housing programs and
subject to certain rules and restrictions similar to those under the
CMF Program) could be categorically presumed as eligible Affordable
Housing Activities and be deemed as meeting CMF rules and requirements
for Affordable Housing. For example, under this approach, projects
funded with both CMF and the Low-Income Housing Tax Credit (LIHTC), and
meeting all LIHTC requirements, could be assumed to meet all CMF
requirements such as affordability or rent requirements.
(a) Should the CDFI Fund consider this approach as a way to align
the CMF program with other significant federal affordable housing
programs?
(b) What are the potential benefits and concerns in utilizing this
approach for CMF?
(c) What federal programs are sources of capital frequently used in
conjunction with CMF that should be considered if this approach were to
be adopted, particularly those related to rental, homeownership, and/or
rural housing?
[[Page 43415]]
(d) What, if any, affordability, and property standards
requirements currently in place for the CMF program would not be
covered by using this approach, and should they be retained?
2. CMF income limit definitions: The definitions of Low-Income,
Very Low-Income, or Extremely Low-Income in the CMF Interim Rule differ
from some other federal housing programs.
(a) Are such differences impactful to the financing or management
of CMF projects, and if so, how?
(b) Should the CDFI Fund change the definition of income groups to
better align with other federal housing programs? If so, how should the
CDFI Fund define income limits? Which definitions of income groups
should be changed, and which programs should the CMF program align
with?
3. CMF income certification for LIHTC projects: HERA addresses and
provides guidance regarding the requirement for annual recertification
of tenant incomes for properties financed under the LIHTC Program.
Under this guidance, properties that are 100% low-income rent-
restricted are no longer required to undertake ongoing recertification.
See Housing and Economic Recovery Act of 2008, Public Law 110-289 (7/
30/2008), 122 Stat. 2888, section 3010(a) (2007-2008)(codified at
Public Law 110-289, 122 Stat. 2654 (2008)). The CMF Interim Rule at 12
CFR 1807.401(f) requires annual re-examination of tenant income.
(a) Would adopting a similar approach as outlined in IRC sec.
142(d)(3)(A) with respect to LIHTC income determinations result in a
meaningful impact on the administration of the CMF program?
(b) If so, how can this approach be balanced against the possible
risk of leasing a unit to a non-qualified Family and noncompliance with
tenant income determination requirements (12 CFR 1807.401(f)) and over-
income tenants (12 CFR 1807(g))?
B. CMF Commitment Deadline: Section 1339(c) of HERA stipulates that
grants under the program must be Committed for use within two years
after the allocation of the Award. As a way to ensure that funds are
used in a timely manner, the CMF Interim Rule applies a two-year
commitment of any Award to specific projects and further specifies that
the commitment must be made in a written, legally binding agreement.
The CDFI Fund is requesting input on alternate approaches.
One possible approach may be that the commitment deadline would be
satisfied if, within two years, a Recipient committed the Award to one
of the six Eligible Activities (i.e., capitalize a Loan Loss Reserve,
Revolving Loan Fund, Affordable Housing Fund or a fund for Economic
Development Activities; or make Risk-Sharing Loans; or provide Loan
Guarantees), coupled with a new requirement that a commitment to a
specific project must be made within three years after the Effective
Date of the Assistance Agreement.
1. What are some of the difficulties, if any, of meeting the
current two-year commitment deadline under the CMF Interim Rule and why
are they difficult?
2. In what way(s) would the proposed two-step approach make it
easier for CMF Recipients to meet the Commitment Deadline?
3. What are some concerns or issues with this two-step approach?
4. Are there other alternative approaches to commitment that would
satisfy the statutory two-year commitment deadline?
C. CMF Leverage Requirements and Calculation Rules: Leveraging the
CMF Award to attract private and other public capital is an important
component of the program. At a minimum, the CMF statute under HERA
requires that the Award be leveraged ten times. There are three types
of leverage under CMF: (a) Enterprise-Level, (b) Project-Level, and (c)
Reinvestment-Level. CMF defines (a) Enterprise-Level as capital earned,
borrowed, or raised by the Recipient or its Affiliates, which is
designated for use and ultimately used to pay for Leveraged Costs but
is not initially restricted for use for specific properties at the time
it is earned, borrowed or raised; (b) Project-Level as capital used to
pay Leveraged Costs that is restricted to a specific project when it is
raised; and (c) Reinvestment-Level as the reallocation of repaid CMF
Award and/or Enterprise-Level Capital into new eligible activities
within the established Investment Period.
1. Should Reinvestment-Level leverage, which measures the
reinvestment of both a CMF Award and Enterprise-Level leverage, be
removed and only Enterprise-Level leverage and Project-Level leverage
be considered to simplify the calculation of Leveraged Costs? Please
explain the rationale for your answer.
2. If the Reinvestment-Level leverage is retained, should the
calculation be changed to a multiplier and based only on the Award
amount (i.e., number of times the Award amount is repaid and reinvested
in excess of the original Award amount), rather than a calculation of
the reinvestment of a combination of the Program Income from the Award
plus new Enterprise-Level leverage? Please explain the rationale for
your answer.
3. What are some concerns or issues with either of these approaches
discussed in items 1 and 2 above?
4. Are there any other ways the CDFI Fund might consider
simplifying the calculation of how Recipients leverage their CMF Award?
If yes, please describe.
D. CMF Program Income (PI) Rules: The nature of CMF as a financing
program often results in Recipients earning Program Income (PI) from
the repayment of loans and returns on equity investments. PI generated
during the first five years of the CMF Award (the Investment Period)
from the repayment of CMF funds from loans or equity must be reinvested
under certain requirements specified in the Recipient's Assistance
Agreement. Note that the questions below refer to the PI earned during
the Investment Period and not PI earned thereafter, which is treated
differently per the Assistance Agreement.
1. Currently, the Recipient's Assistance Agreement requires that PI
be expended only on specified eligible activities in the Agreement.
Should the use of PI earned on the CMF Award be expanded to include all
CMF eligible activities as outlined at 12 CFR 1807.301? Please explain
the rationale for your answer.
2. Should adding eligible activities specific only to PI, and not
otherwise eligible under the program, be allowed? If yes, what
additional eligible activities should be contemplated for the use of PI
and why? If no, please explain the rationale for your answer.
3. Currently, projects funded with PI must be completed within 36
months of being Committed. Should the CDFI Fund modify the 36-month
completion deadline as it relates to the use of PI? If so, what
deadline if any, should be established? Please explain the rationale
for your answer.
4. Should the CDFI Fund modify the requirement that any PI in
excess of $100,000 be Committed to a project the following year? Please
explain the rationale for your answer. If yes, what time period or
threshold amount should be considered and why?
5. Under the CMF Assistance Agreement, CMF's 10-year affordability
period applies to projects funded with PI.
(a) Should the long-term affordability period for projects funded
with PI be shortened? Please explain the rationale for your answer.
(b) If yes, what period of time would be reasonable, balancing both
the goals of increasing affordability and reducing administrative
burden, and why?
[[Page 43416]]
E. CMF Clarification of Rules on Loan Loss Reserves and Loan
Guarantees: Under CMF, Recipients may use their Award to establish Loan
Loss Reserves or Loan Guarantees. Currently, CMF requirements related
to Loan Loss Reserves and Loan Guarantees are limited. In order to
ensure that these uses are properly addressed under the program:
1. What additional guidance and rules would be useful to Recipients
and why?
2. Should there be a requirement for the establishment of escrows
or restricted accounts for Loan Loss Reserves or Loan Guarantees?
Please provide the rationale for your answer.
3. What coverage limits (i.e., percentage of loan covered in the
event of borrower default) would be considered sound and reasonable and
why?
4. What factors should be considered for proper and effective use
of Loan Loss Reserves or Loan Guarantees and why?
F. CMF Manufactured Housing Affordability Rules: Under CMF,
manufactured housing that meets the federal Manufactured Home
Construction and Safety Standards may be financed. Under the CMF
Interim Rule at 12 CFR 1807.104, manufactured housing is defined as
Single-family housing consisting of a combination of the manufactured
housing and the lot, or a manufactured housing lot. Given the hybrid
nature of manufactured housing Homeownership--where the unit is
typically owned by an individual or Family, but the lot it sits on may
be rented--the CDFI Fund is requesting input as to how best to measure
the affordability of both the cost of the unit and the rental of the
manufactured housing lot.
1. Currently, CMF only measures the cost of buying the manufactured
housing unit. Should the cost of renting the lot also be considered as
it relates to affordability? Please provide the rationale for your
answer.
2. What are some ways to measure the affordability of both the
price of the unit and the cost of renting the manufactured housing lot?
3. What additional guidance and rules would be useful as it relates
to resident-owned manufactured housing communities?
4. Are there additional points of clarification related to
manufactured housing that should be considered? If yes, please describe
them.
G. CMF Funding for Assisted Living Facilities: CMF is a flexible
program that affords Recipients the opportunity to finance a range of
affordable housing types. As it relates to rental housing, projects are
subject to a variety of regulatory requirements, including tenant
income determinations and rent limitations. While affordable assisted
living projects are eligible uses of the Award under the CMF Interim
Rule, the hybrid nature of assisted living--where rent generally
includes both the cost of housing and services--often conflicts with
the existing CMF limitations and restrictions. For example, the
combination of the cost of rent and the services that are typical in
assisted living projects may result in rent levels that do not meet the
affordability requirements under the CMF regulations.
1. What challenges currently exist in using CMF Award funding to
finance and/or develop assisted living facilities?
2. If there are challenges, describe how CMF Program requirements
may be modified to better accommodate the development of assisted
living projects, while ensuring that projects remain targeted and
affordable to those with incomes that are Low-Income and below? Are
there other federal or state programs that could provide an example of
best practices in this area? If yes, please describe them. For example,
could the cost of housing be separated from the cost of services, to
accommodate CMF requirements?
3. What additional guidance and rules related to separating costs
would be useful?
4. What is the demand to fund this type of housing with CMF Awards?
5. Are there additional points of clarification related to funding
affordable assisted living facilities that should be considered? If
yes, please describe them.
H. CMF Affordable Homeownership Purchase Price Limitation Rules:
The CMF Interim Rule sets the purchase price limitation for a Single-
family home at 95% of the median purchase price for the area, as used
in the HOME program (12 CFR 1807.402(a)(2)).
1. Should the CDFI Fund use a different index or indices to set
purchase price limits for affordable owner-occupied housing? If yes,
please identify and describe them.
2. Should utilizing underwriting criteria rather than sales price
limits be an alternative? Please describe the rationale for your
answer.
3. Are there any other specific barriers or limitations that may
inadvertently discourage organizations from using CMF to support
Homeownership activities? If yes, please describe them.
4. What are other changes to the CMF program that could foster
greater use of CMF to support Homeownership activities?
I. CMF Economic Development Activities Compliance Requirements: CMF
allows Recipients to use up to 30% of their Award for Economic
Development Activities (EDA) in conjunction with Affordable Housing
Activities (12 CFR 1807.302 (c)). These activities may include the
development of community facilities, as well as the development/
revitalization of commercial space. Under the current CMF Interim Rule,
Economic Development Activities, unlike Affordable Housing, do not have
a specific requirement that the EDA retain its eligible use for a
minimum period. To ensure accountability, the CDFI Fund is considering
requiring that EDA financed under a CMF Award maintain its eligible use
for a minimum period of time.
1. Should CMF establish a minimum period of time that the EDA
financed under a CMF Award maintain its eligible use? Please describe
the rationale for your answer.
2. If yes, what would be a reasonable period of time, considering
the Affordability Period for Affordable Housing is 10 years? Please
describe the rationale for your answer.
J. Participation of Regulated CDFIs in the CMF Program: Regulated
CDFIs including banks, credit unions, and cooperatives are eligible to
apply under CMF. The CDFI Fund is seeking input on how to foster
greater participation by these regulated financial institutions.
1. Are there any specific barriers or limitations that may
inadvertently discourage regulated CDFIs' participation in CMF? If yes,
please describe them.
2. What changes to CMF could foster greater participation from
regulated CDFIs?
3. Should fostering greater participation from regulated CDFIs be a
goal of CMF? Please describe the rationale for your answer.
Authority: 12 CFR 1807; Public Law 110-289.
Marcia Sigal,
Acting Director, Community Development Financial Institutions Fund.
[FR Doc. 2023-14407 Filed 7-6-23; 8:45 am]
BILLING CODE 4810-05-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on July 7, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.