31. How should an Applicant demonstrate that any covered mortgage loan products with ballon payments are consistent with a community development mission?

PM19.3 asks whether an Applicant offers covered mortgage loans that include balloon payments, i.e., a payment that is more than two times a regular periodic payment. If yes, the Applicant must indicate:

32. Does the requirement that adjustable-rate mortgages be underwritten at no less than the maximum rate in the first five years prohibit Applicants from making such loans for which the rate may increase in less than five years?

No, an Applicant that offers adjustable-rate mortgages with a rate that may adjust in less than five years may do so and remain eligible for CDFI Certification so long as it underwrites the mortgage at no less than the maximum rate permitted by the loan in the first five years. For examples of how to determine a mortgage loan product’s maximum interest rate during the first five years, see CFPB’s official interpretation of Paragraph 43(e)(2)(iv) of 12 CFR § 1026.43.

33. How should a CDFI verify the income or assets of a mortgage borrower?

Question PM19.6 asks whether an Applicant verifies the income or assets of the borrower of a covered mortgage loan product. For purposes of CDFI Certification eligibility, an Applicant that offers covered mortgage loan products must verify the borrower’s income or assets using third-party records that provide reasonably reliable evidence of the borrower's income or assets. The Applicant may verify the consumer's income using a tax-return transcript issued by the Internal Revenue Service (IRS).

34. Does the restriction on selling charged-off consumer debt to debt buyers include owner-occupied residential mortgages?

Yes. Question PM21 ask whether an Applicant sells its charged-off consumer or small business debt to debt buyers. An Applicant that sells its charged-off consumer debt – including owner-occupied residential mortgages – or small business debt to debt buyers is ineligible for CDFI Certification.

35. How should an Applicant demonstrate that its overdraft program is consistent with a community development mission?

Question PM26 asks Applicants to describe certain features related to the fees associated with any of an Applicant’s overdraft programs. If an Applicant charges overdraft fees that can exceed the amount of the item being cleared (see PM26.2a), or if an account holder of the Applicant may be charged overdraft fees on more than six occasions in a rolling 12-month period (see PM26.4a), Applicants are asked to explain how such practices should be considered consistent with an acceptable community development mission.

36. How should an Applicant demonstrate that its nonsufficient funds (NSF) fees are consistent with a community development mission?

Question PM27 asks Applicants to describe certain features related to any NSF fees their customers may be charged. If an Applicant charges NSF fees that can exceed the amount of the item returned unpaid (see PM27.2a), or charges NSF fees more than once for the same transaction, regardless of whether the item is re-presented (see PM27.4a), it must explain how such practices should be considered consistent with an acceptable community development mission.

37. Can an Applicant seek flexibility regarding any of the standards for responsible financing practices?

The current standards for responsible financing practices allow for certain circumstances under which an otherwise disqualifying practice might serve an acceptable community development purpose. For example, Applicants that offer consumer loans that exceed an MAPR of 36% may still be determined eligible for certification if certain conditions are met, such as a default rate no greater than 5%, limits on fees to refinance the loan, substantially equal loan payments that amortize to a zero balance, among other conditions.

38. For the CDFI Certification Financing Entity test, how does the CDFI Fund define “predominance” when measuring whether an Applicant’s predominant business activity is the provision, in arms-length transactions, of Financial Products and/or Financial Se

The CDFI Fund’s regulations state that a “CDFI shall be an entity whose predominant business activity is the provision, in arms-length transactions, of Financial Products and/or Financial Services.”7 To be predominant, the provision of Financial Products and/or Financial Services does not have to be the majority of the Applicant’s overall activity, but must be the activity that reflects the greatest use of the Applicant’s assets and staff time when compared to any other separate and distinct type of activity in which the Applicant engages.

39. My CDFI provides grants through funds we’ve received from a Federal, State government, or municipal public assistance program – like the EPA’s Greenhouse Gas Reduction Fund. Do I need to include this grant making activity when calculating our organiza

An Applicant or Certified CDFI may disregard grant funds provided through a Federal, State government, or municipal community development-focused or public assistance program for the purposes of the Financing Entity predominance test if the following conditions are met:

40. Can staff time dedicated to the provision of Development Services count as financing activity for the purposes of the Financing Entity test?

Consistent with CDFI Fund regulations, Development Services are not considered as assets or staff time that support the direct provision of Financial Products and/or Financial Services. However, Applicants may disregard staff time dedicated to the provision of Development Services when calculating their predominant activity.

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