Transaction Questions
How is the Senior Housing Crime Prevention Foundation Structured?The Senior Housing Crime Prevention Foundation is made up of two separate and distinct entities joined together to assist financial institutions in meeting Community Reinvestment Act obligations in the areas of loan and investment test credits. These two entities are:
- The Senior Housing Crime Prevention Foundation, Inc. is a 501c-3 non-profit Tennessee corporation established for the express purpose of providing financial institutions with direct, primary area, guaranteed qualified Community Reinvestment Act credit for loans. It also provides trusts and foundations with a way to accomplish their mission with zero to minimal risk of capital, dependent upon the bond purchase selection for collateralization purposes.
- The Senior Housing Crime Prevention Foundation Investment Corporation is a for profit cor poration established for the express purpose of providing financial institutions with direct, primary area, guaranteed qualified Community Reinvestment Act credit for Investments.
- Sponsorship dollars from private trusts and foundations are all handled as loans through the Senior Housing Crime Prevention, Inc.
Upon review of the current Office of the Comptroller of the Currency (OCC) regulations and in concert with OCC officials, it was determined that in order to accommodate both CRA Investment and CRA Loan credit obligations through support of this program, different entities - one being non-profit designated and one being for profit designated - needed to be established in order to clearly convey qualified CRA credit in both the investment and loan tests. ACCORDINGLY, BOTH OF THE FOUNDATION VEHICLES DESCRIBED ABOVE AND USED IN THIS PROJECT HAVE A STATED PURPOSE OF OPERATING IN A STRICT NON-PROFIT FORMAT AND MANNER.
Sponsorship dollars from private trusts and foundations are all handled as loans through the Senior Housing Crime Prevention, Inc.
The charitable purpose of the Foundation is to operate as a non-profit entity while providing access to the Senior Crimestoppers Program (SCS) on a no cost basis to senior housing communities who want to adopt the program in their facility. In making SCS available to these properties, the Foundation has contracted with USI Alliance, the founder of SCS, to provide a standard SCS program to all facilities desiring it through Foundation sponsorship. This standard program includes:
- Membership Charter Plaque;
- Personal lock boxes;
- In-service and educational materials for management, staff, residents and families;
- Use of an anonymous tipsline as a corporate compliance hotline available 24/7/365;
- Up to $1,000.00 in rewards posted for each and every incident that occurs;
- A standing $500.00 workers compensation fraud reward;
- Use of the annual “The Time of Your Life” video series; and
- Receipt of an annual Wish Comes True grant for use on behalf of the residents enjoyment.
Details of the Senior Crimestoppers program can be found at www.seniorcrimestoppers.org.
Will financial institutions receive qualified CRA credit for their participation?An OCC letter issued March 20, 2000 states that an investment or loan by a bank which enables a HUD property or nursing home to participate “in the Senior Crimestoppers program” will receive positive CRA consideration. This letter was shared with all Federal CRA regulatory agencies, and as a result, all Federal regulatory agencies have given full CRA credit for dollars invested or loaned in the Foundation.
A bank seeking CRA credit may allocate any amount of the funds it desires (or needs to invest and/or loan) for CRA purposes to meet the loan or investment test and use the SHCPF as the conduit to receive qualified CRA credit in both or either of these categories. Further, Ms. Karen Tucker, OCC National Bank Examiner, was quoted in the February 26, 2001 edition of “Regulatory Risk Monitor” as saying “… In addition to the lending and investment test credit, examiners may also consider giving banks service test credit for the project, which meets CRA innovative and complex standard.” The SHCPF will apply each sponsor’s funds toward support of the Senior Crimestoppers Program in a senior housing facility in a bank’s primary CRA assessment area(s).
The Foundation presents each sponsor with an SCS charter certificate plaque for itself and one that is used for the sponsor to present to the sponsored facility. The sponsor bank is also included in the Foundation’s press releases, local civic activities and public service advertising in the community.
What risk does my organization undertake in participating?Absolutely none to minimal. All dollars loaned or invested in the Foundation can be 100% collateralized by a U.S. Government Agency. Along with the positive publicity in the community and the appreciation of the 50 and over age group - the largest and most profitable banking demographic nationally, the "social investment" return in playing a role in helping to solve and prevent crimes against this segment of society is also high.
What does the SHCPF do with the money A sponsor invests or loans?The dollars invested in or loaned to the Foundation will be used for the sole purpose of purchasing bonds and using a portion of the yield from the principal invested to support the installation and operation of the Senior Crimestoppers program in facilities housing low- to moderate income residents. The bonds purchased are secured and pledged as full collateral back to the sponsoring bank, institution, trust or foundation.
For financial institutions, the investment or loan to the Foundation(s) will remain outstanding to qualify for full CRA credit: (a) with the investment credit being selfcertifying each year, and (b) the loan credit being renewable and reportable each year as an origination.
Sponsorship dollars from private trusts and foundations are all handled as loans through the Senior Housing Crime Prevention, Inc.
Dollars directed for CRA Loan Credit will be made payable to the Senior Housing Crime Prevention Foundation, Inc. This entity is a 501 c-3 non-profit corporation. Every dollar directed, will be loaned to the Foundation for the purpose of its’ operating objectives. Immediately upon receipt of the loaned funds, the Foundation will purchase bond obligations (as directed by the lending institution) for the full amount of the loan. At the end of the 7-year loan or the renewal period, the bonds will be returned to the sponsoring entity. The Foundation will be entitled during the loan period, and any renewal thereof, to use a portion of the yield from the the pledged obligation as interest to fulfill its program operation for housing facilities and their residents designated in the sponsoring bank's primary assessment area(s). The balance of the dollars earned as interest from the pledged obligation will be paid to the sponsoring entity semi-annually as interest inc ome on the loan.
Dollars directed for CRA Investment Credit will be made payable to the Senior Housing Crime Prevention Foundation Investment Corporation. This entity is a for profit Tennessee corporation. Every dollar directed for investment credit will be used be used to purchase preferred stock in the foundation. Each share purchased will come with a guaranteed re-purchased option for the full purchase price. Immediately upon receipt of the invested funds, the Foundation will purchase bond obligations for the full amount of the investment. At the end of the 7-year investment period, the investor may opt to have the shares re-purchased by the Foundation. During the term of the investment, the Foundation will be entitled to use a portion of the yield from of the pledged obligation as interest to fulfill its program operation for senior housing facilities and their residents. The balance of the proceeds earned as interest from the pledged obligation will be paid to the sponsoring entity semi- annually as a dividend on the preferred stock.
Why should my organization provide support for the nursing home and/or senior housing industry?- Nursing home and senior HUD housing residents qualify as low-to-moderate income individuals. Therefore, any dollars supporting these residents receive qualified Community Reinvestment Act (CRA) credit.
- Over the last few years the federal government has introduced sweeping new mandates aimed at providing more protection to elderly residents in nursing homes & HUD Senior properties against crime, abuse and fraud.
- On March 25, 1999, President Clinton signed into law legislation requiring facilities to take a pro-active approach toward crime prevention and quality of life issues. As a part of this act, facilities are required to implement systems and procedures to “prevent, identify and stop physical or verbal abuse, neglect, and misappropriation of resident property.” State and federal enforcement agencies are now penalizing facilities that do not have programs in place and can issue on the spot fines for non-compliance.
- In June 1999, the Justice Department announced its’ “priority mandate” in cracking down and prosecuting crime, theft, abuse and fraud against this segment of society. Penalties can be levied against staff and management with damages being compensatory and punitive in nature.
- Sweeping state initiatives are passing state legislation requiring facilities to have programs in place to deter the theft and loss of resident property, as well as prevention of crime in general. These state initiatives are patterning themselves after the White House mandates and can hold management and staff liable for compensatory and punitive damages.
- Typically, HUD properties for seniors have a higher than average crime rate. Crimes that affect these types of properties are vandalism, fraud, violent behavior, drugs, property damage, and theft among others.
- The Health Care Financing Administration (HCFA), a branch of the U.S. Department of Health, established the prospective payment system (PPS) of reimbursement in 1997, significantly altering the Medicare payment system. Under the PPS of reimbursement, facilities are receiving pre-determined payment amounts for services it renders, regardless of actual expense incurred.
- The Department of Justice has become involved in nursing home fraud investigation and prosecution as a part of the White House mandates to improve the crime conditions in long-term care facilities.
- The Office of the Inspector General (OIG) has recently introduced guidelines for corporate compliance programs in the long-term care industry focused on the prevention of fraud, abuse and neglect.
- The media has long portrayed senior housing facilities as being harborers of crime, theft, abuse, neglect, rape and other crimes carried out against weak, frail, vulnerable individuals.
- It is estimated that over 15% of all nursing home facilities in the United States are in formal bankruptcy proceedings.
- Faced with cutting costs in every area of operation and many times operating under the provisions of bankruptcy or near bankruptcy forces, these facilities are only able to attract the lowest of wage earners for the very difficult job of administering life services to the sick, frail and disabled. This can lead to a plethora of problems, including and especially an increase in risk management expense.
- Coupled with cost constraints and increased regulation and scrutiny, there are two other important factors having a negative affect on the industry. (1) Litigation for crimes committed against residents in increasing at an unparalleled rate. The average expense of defending and settling one lawsuit is $112,351.00 nationally and $278,637.00 in the state of Florida. (2) The cost and increased exposure to litigation has caused insurance rates to skyrocket, increasing as much as 200% during the past two years.
The bonds are held in safekeeping in the Foundation’s account at Fifth Third Bank as third party custodian. Safekeeping receipts are issued to the participating Bank evidencing ownership of the bond by the Foundation and 100% pledge to the Bank.
The custodian provides the Foundation with financial information for booking to its general ledger each month. With investors across the United States, this accounting function is best managed if all bonds are held by one custodian.
Can the bond have a maturity that does not coincide with the transaction maturity date?Yes. The bond can have a mid term maturity or call. The only requirement of the Foundation is that it not be in an unsecured position. A replacement bond should be provided to the Foundation on the call/maturity date, or as close to that date as possible.
Along those same lines, if an investor wants to swap collateral during the course of the commitment period, this can be done on an infrequent basis.
What type of bond can be used?A non-amortizing bond of investment grade with a coupon rate of at least 1.00%. It can be a Treasury, Government agency, or corporate. Because of the liquidation feature of mortgage backed bonds, they cannot be used as collateral.
In addition, municipal bonds can be used; however, as the bonds are owned by the Foundation, there is no tax free benefit to the Bank.
How do I fund the transaction?A bond can be used to fund the transaction by one of three ways. It can be transferred from the bank’s current portfolio (constitutes a sale of the bond), the bank can use their broker to purchase a new bond and have that broker transfer the bond free to the Foundation’s safekeeping account with Fifth Third Bank, or the bank can use the Foundation’s broker to purchase a new bond.
If participation is through an investment, do the Dividends qualify for dividend exclusion?This should be discussed with the Bank’s accounting firm. Items to take into consideration are the 7 year term and automatic renewals.
If participation is through an investment, how many shares of preferred stock does the bank receive?Each share is valued at $1,000, with one stock certificate issued for the total participation ($1,000,000 would be one certificate for 1,000 shares).
How does a bank participant record the transaction?If the bank participates through a loan, then the loan is booked through the loan system, with the interest rate equal to the bond coupon rate less 1.00%.
If the bank participates through an investment, we have customers who have recorded the investment as an other asset and not mark-to-market, and we have customers who carry the preferred stock as an other equity investment and mark-to-market based on the collateral market value. In both cases, the dividend accrual would equal the coupon rate less 1.00%.
In both the loan and the investment, the bond premium or discount would be amortized to income as a yield adjustment.
How does the bank receive the interest or dividend income?The collateral bonds are held in the Foundation’s name, the trigger for the participating bank to receive CRA credit, and the Foundation receives the coupon income. The Foundation remits to the bank the interest or dividends due via check after deducting the 1.00% portion retained by the Foundation from the coupon. Example: If the collateral is a 3.00% coupon bond, the Foundation retains a yield of 1.00% and remits 2.00% to the Bank.
Transforming Lives
With the support of our partners, the Senior Housing Crime Prevention Foundation transforms the lives of vulnerable nursing home residents. It is hard to overstate the transformative effect a bank can have on the life of an elderly person by removing fear from their lives — fear of neglect, fear of theft, fear of needing equipment and not knowing where to turn. Click on the stories below to learn more about how Senior Crime Stoppers is transforming lives every day.
Marquez Hillard Story
Marquez’ Life changed in a second but with the help of Senior Crime Stoppers, his wish for a new wheelchair came true. More
Carolyn Denny Story
The SHCPF has helped to open the pathways of communication for Carolyn with a new laptop. More
Regulatory Letters
