An investment company in Florida is launching a mutual fund today that is designed to help banks meet the Community Reinvestment Act's investment test.

The CRA Qualified Investment Fund will take on the tasks of finding eligible securities, documenting that they satisfy CRA, and earmarking them for specific banks.

The fund's organizers claim it will make passing the investment test- which makes up 25% of the CRA ratings of banks larger than $250 million of assets-a snap.

"We purchase an array of investments specifically for your institution-a portfolio within our portfolio-to meet the credit and community development needs of your assessment areas," a brochure describing the fund states.

A bank's minimum initial fund investment is $250,000; subsequent investments may be any size. Money may be withdrawn at any time, and the fund expects to pay market returns.

Sound too good to be true? Even some of the fund's trustees thought so- at first.

"Yes, I was skeptical," said John E. Taylor, president and chief executive officer of the National Community Reinvestment Coalition, which represents 700 organizations. "It took them a half dozen calls for me to even talk to them."

But Mr. Taylor is now convinced the fund will revolutionize CRA investing.

"I can't see any reason why this doesn't take off like sliced bread," he said. "This is a vehicle waiting to happen." (Mr. Taylor, as a board member, will be paid $12,000 a year. He said he turns over the fee to his coalition.)

By the end of next year, organizers expect the CRA Qualified Investment Fund to have $1 billion of assets under management. "It could easily be $10 billion," said Neil Solomon, a principal with CRAFund Advisors, the fund's Fort Lauderdale, Fla.-based portfolio manager.

"The response from banks has been incredible," said David Zwick, president of the mutual fund and the investment company.

Mr. Solomon and Mr. Zwick have been talking up the idea at industry conferences in recent weeks. They are planning the official launch today at a CRA conference in Newport, R.I. The mutual fund won final Securities and Exchange Commission approval June 10.

Regulators will not discuss particular products, but one senior official said backing CRA-eligible loans with securities "is a burgeoning industry."

This month, Local Initiatives Support Corp. of New York introduced the Community Development Trust, a real estate investment trust that will buy fixed-rate affordable housing mortgages.

More than 1,800 banks holding $6 trillion in total assets must satisfy the investment test. The CRA Qualified Investment Fund is targeting banks with $250 million to $30 billion of assets. "The larger banks have the resources to do this on their own," Mr. Solomon said.

The fund will invest primarily in AAA-rated securities backed by single- and multifamily mortgages, as well as taxable municipal bonds whose fundamental purpose is community development. Management, distribution, and other fees total 0.94%. According to the prospectus, the only other cost is a 1% redemption fee.

The founders contend the fund will be successful because it is the first to bring together experts from the banking business, the investment world, and the community realm.

Besides Mr. Taylor, the board of trustees includes veterans of Citibank, KPMG Peat Marwick, and the Wharton School at the University of Pennsylvania. The board's chairman is Kenneth H. Thomas, a Miami-based CRA expert who is also one of the fund's four owners.

"We have the dream team of CRA," Mr. Solomon said.

Banks with more than $250 million of assets are examined under CRA for their lending, investment, and service to low- and moderate-income communities. While lending is the dominant factor, investments count for 25% of a bank's overall score. At smaller banks not subject to the three- part test, CRA-related investments can mean the difference between a "satisfactory" and an "outstanding" rating.

Federal regulators consider an investment to be CRA-related if the securities primarily promote community development. For example, according to a 1996 interpretive letter from the Office of the Comptroller of the Currency, "a mortgage-backed security is considered a qualified investment only if the entire security primarily funds affordable housing for low- or moderate-income individuals."

A similar letter in 1997 said examiners judge a bank's investments on five criteria: dollar amount; innovativeness or complexity; responsiveness to credit and community development needs; and the degree to which the qualified investments are not routinely provided by private investors.

Regulators have said both direct and indirect investments qualify.

This test can be difficult because such investments are hard to find and even harder to document. But the CRA Qualified Investment Fund's organizers are promising to do the legwork for banks.

"The whole key to this is providing the documentation to the regulators," Mr. Zwick said. Such paperwork proves the investment was made in a particular bank's assessment area and that it is truly serving the low- to moderate-income community.

"If a regulator is giving a bank in Nebraska a hard time, I'll hop on a plane and go there," Mr. Solomon said. "We intend on providing a level of service that will impress."

Jo Ann S. Barefoot, a CRA compliance expert and partner of KPMG Barefoot Marrinan in Columbus, Ohio, has met with the fund's organizers and was impressed.

"I think this concept is great," she said. "In many markets it's very difficult (for banks) to find appropriate investments."

"I think there's a market, a need for this."

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