The 2013 Interagency Minority Depository Institution and CDFI Bank Conference
Partnering with Washington
|Executive Director, President’s Council on Jobs and Competitiveness, and Deputy Assistant Secretary for Small Business, Community Development and Housing, US Department of the Treasury
|Federal Housing Administration Commissioner and Assistant Secretary, HUD
|Director, CDFI Fund, US Treasury
|Associate Administrator, Office of Capital Access, US Small Business Administration
|Director, Special Programs, US Department of Agriculture
|Senior Vice President, Small Business, US Export-Import Bank
During this plenary session, senior officials of the Federal government discussed programs of particular interest to Minority and CDFI Banks. Departments and agencies included: the U.S. Treasury, FHA, Small Business Administration, CDFI Fund, USDA, and the US Export-Import Bank. Specific Federal programs that can positively impact bank performance were overviewed.
Presidential Appointees and Senior Executives of Federal agencies provided an overview of programs MDI and CDFI banks could use to help serve their communities. They invited participants to partner with each of their agencies. And, they introduced members of their staff who would be available throughout the conference to provide more specific information and technical assistance. For reference purposes, additional background information on some of these programs follows.
US TREASURY PROGRAMS
States Small Business Credit Initiative (SSBCI)
The SSBCI is expected to help spur bank lending and other financing for small businesses. The Small Business Jobs Act created the State Small Business Credit Initiative (SSBCI), which was funded with $1.5 billion in order to strengthen state programs that support lending to small businesses and small manufacturers. Participating states use the Federal funds for programs that leverage private lending to help finance small businesses and manufacturers that are creditworthy, but are not getting the loans they need to expand and create jobs.
SSBCI allows states to build on their own successful models for State small business programs, including collateral support programs, Capital Access Programs (CAPs), loan guarantee programs and loan participations. The Overview of SSBCI for Lenders, which details benefits for lenders, indicates that funded state programs are also intended to help lenders expand their small business lending base, make their own credit decisions, and support local economic development. More details, including state-by-state information on how community banks and other lenders can participate, are available at http://www.treasury.gov/ssbci.
To encourage financial institutions to consider using the SSBCI funded state programs to enhance small business lending, and clarify regulatory questions, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) have each provided guidance. In its Community Affairs publication, Community Developments Investments, the OCC described examples of how banks have used some of the programs, and answered frequently asked regulatory questions on a dedicated page of its website. And, the FDIC Community Affairs Program has helped to facilitate meetings in several states on the initiative for community banks, Treasury and State program officials, and others. The FDIC has also answered frequently asked regulatory questions in a document on its website.
Community Development Financial Institutions Fund (CDFI Fund)
During the session, the U.S. Treasury’s Community Development Financial Institutions Fund (CDFI Fund) announced an important, new Capacity Building Initiative training series for CDFI banks that are also Minority Depository Institutions (MDIs), and MDIs working toward becoming certified as CDFI banks. Out of nearly 1,000 CDFIs, 80 CDFIs are banks and nearly 40 of these banks are MDIs.
Deloitte Financial Advisory Services will provide the CDFI Fund’s Preserving and Expanding CDFI Minority Depository Institutions Training Series with the support of relevant industry subject matter experts. The series will address the unique challenges facing CDFI MDIs, and will build their capacity to provide community development and financial services to their target markets. As part of the series, an in-depth assessment of the needs of CDFI MDIs will form the basis of unique and customized trainings and workshops.
“Minority Depository Institutions serve a vital function by providing needed financial services such as checking or savings accounts and in building access to credit and capital for minority and low-income communities across the country,” said CDFI Fund Director Donna J. Gambrell. “I am proud that the Capacity Building Initiative is continuing to anticipate and respond to the needs of the CDFI industry, and this training series will provide a unique opportunity for CDFI MDIs to discuss with their peers how to develop and grow their organizations.”
The Preserving and Expanding CDFI Minority Depository Institutions series will provide training and technical assistance on a variety of topics, including building leadership capacity, expanding capitalization, managing organizational transformation, enhancing operational performance, and the compliance and regulatory impacts on community banking models.
All training opportunities will be posted on the CDFI Fund's website in the coming months. As with other Capacity Building Initiative series, the Preserving and Expanding CDFI Minority Depository Institutions series will provide webinars, as well as an in-depth Virtual Resource Bank on the CDFI Fund’s website for the general public.
Other CDFI Fund accomplishments and initiatives were also overviewed. Since its creation, the CDFI Fund has awarded over $1.7 billion to community development organizations and financial institutions; and it has awarded allocations of New Markets Tax Credits which will attract private-sector investments totaling $36.5 billion, including $1 billion of special allocation authority to be used for the recovery and redevelopment of the Gulf Opportunity Zone.
CDFI Fund initiatives currently available to CDFI and MDI banks and others that promote access to capital and local economic growth include:
- The Community Development Financial Institutions Program, by directly investing in, supporting and training CDFIs that provide loans, investments, financial services and technical assistance to benefit underserved populations and communities
- The New Markets Tax Credit Program, by providing an allocation of tax credits to Community Development Entities which enable them to attract investment from the private sector, and reinvest these amounts in low-income communities’ businesses and real estate projects
- The Bank Enterprise Award Program, by providing an incentive for all banks to invest in their communities and in CDFIs
- The Native Initiatives Program, by taking action to provide financial assistance, technical assistance, and training to Native CDFIs and other Native entities proposing to become or create Native CDFIs
- The Healthy Food Financing Initiative, by providing financial and technical assistance to help CDFIs to finance businesses providing healthy food options
- The CDFI Bond Guarantee Program, by issuing bonds to support CDFIs that make investments for eligible community or economic development purposes
SMALL BUSINESS ADMINISTRATION (SBA) PROGRAMS
SBA is bringing more community banks, including MDI and CDFI banks, and other lenders back to SBA lending. The expansion ensures that small businesses have more points of access to the capital they need. In FY 2012, the SBA supported more than $30 billion in lending, for a second consecutive year, to more than 47,000 companies. Today, commercial lending markets continue to improve and the economy is growing stronger. However, gaps remain for smaller dollar loans and loans to underserved communities. To help fill these gaps, the SBA has streamlined its programs and opened them up to more lenders.
For example, the SBA revamped its Small Loan Advantage program, the key initiative aimed at expanding access to its 7(a) product for loans under $350,000, by eliminating pages of paperwork that lenders and borrowers previously had to review and fill out. In addition, this new platform makes it easier to process low‐dollar 7(a) loans by expanding the pool of lenders to include entities outside of SBA’s Preferred Lender program. These changes have resulted in a more than 140 percent increase in Small Loan Advantage loans and an over 200 percent increase in the number of lenders using the program.
The SBA also revamped its CAP Lines program, which is designed to help small businesses meet their short‐term and cyclical working capital needs. The program is now experiencing loan volumes up over 200 percent by dollar volume and 300 percent by number.
And, the Agency continues to implement changes to its Community Advantage program, which focuses on expanding access to capital for small businesses and entrepreneurs in underserved communities, and they have received excellent feedback from lenders and borrowers on the proposed enhancements.
SBA is committed to expanding access to capital for small businesses in underserved areas through the Small Loan Advantage and Community Advantage programs.
Small Loan Advantage is structured to encourage existing SBA lenders to make lower-dollar loans, which often benefit businesses in underserved markets.
- Maximum Loan Size: $350,000
- Guarantee: 85 percent for loans up to $150,000 and 75 percent for those greater than $150,000.
- Approval Times: Most Small Loan Advantage loans will be approved in a matter of minutes through electronic submission (e-Tran). Non-delegated Small Loan Advantage loans will be approved within 5 to 10 days.
- Paperwork: Small Loan Advantage features a two-page application for borrowers after the lender has decided to apply for an SBA guaranty for the proposed loan. The lender completes a credit memo and may use its own loan note.
- Lender Requirements: Small Loan Advantage is open to all financial institutions with an executed loan guaranty agreement with the SBA (currently over 7,500 lenders across the nation).
Community Advantage is a pilot initiative aimed at increasing the number of SBA 7(a) lenders who reach underserved communities, targeting community-based, mission-focused financial institutions which were previously not able to offer SBA loans.
- Maximum Loan Size: $250,000
- Guarantee:85 percent for loans up to $150,000 and 75 percent for those greater than $150,000.
- Approval Times: Most Community Advantage loans will be approved within 5 to 10 days.
- Paperwork: Community Advantage features streamlined paperwork, with a two-page application for borrowers.
- Lender Requirements: Community Advantage is open to mission-focused lenders, including Community Development Financial Institutions, SBA’s Certified Development Companies and SBA’s nonprofit microlending intermediaries. Community Advantage lenders will be expected to maintain at least 60 percent of their SBA loan portfolio in underserved markets.
- Community Advantage leverages the experience these institutions already have in lending in economically-challenged markets, along with their management and technical assistance expertise to help make their borrowers successful.
UNITED STATES DEPARTMENT OF AGRICULTURE (USDA) PROGRAMS
MDI and CDFI banks that reach into rural communities can benefit from USDA lending-related programs. USDA Rural Development has directly invested or guaranteed more than $131 billion over the last four years in broadband, businesses, housing, safe water, community facilities and more. These activities have benefited not only local communities it serves, but the overall economy as well.
Rural markets benefit most from initiatives that integrate local institutions and businesses, those that have intimate knowledge of local needs, with State and Federal agencies. The presence of USDA field offices in every state helps to serve the specific needs of local communities. USDA Rural Development staff is able to identify a wide range of community and economic development resources for local elected officials, business owners, families, farmers and ranchers, schools, nonprofits, cooperatives and tribes. Community and minority banks and rural small businesses are encouraged to contact their nearest USDA Rural Development office for information about available assistance.
USDA Rural Development assistance includes direct and guaranteed loans, grants, technical assistance, and other payments. They provide technical assistance to lenders, borrowers and other beneficiaries. USDA’s support programs can also help leverage private sector financing.
Through USDA Rural Development’s business and cooperative loan, grant, and technical assistance programs, the agency has helped thousands of rural small business owners and agricultural producers improve their enterprises, including those related to renewable energy. Beyond direct assistance to these business owners and producers, financial support from USDA also creates lasting economic development opportunities in the rural communities where the projects are located. Business and cooperative funding created or saved over 52,000 rural jobs in 2012.
The USDA Rural Development housing program ensures that rural families have access to safe, well-built, affordable homes. For example, USDA’s Single Family Housing Direct Loan Program provides homeownership opportunities to low- and very-low-income rural residents. In fact during 2012, more than 153,000 families, with limited- to moderate-incomes, purchased homes utilizing USDA programs. These programs also helped about 7,000 rural individuals or families repair their existing homes under the home repair loan and grant program. And, more than 400,000 low- and very low-income people were able to live in USDA financed Multi-family Housing Program units, thanks to rental assistance.
Programs of interest to MDI and CDFI Banks include both Business and Cooperative Loan Assistance and Housing and Community Facilities Loan Assistance:
Business and Cooperative Loan Assistance
- Business and Industry Guaranteed Loan (B&I) Program
- Intermediary Relending Program (IRP)
- Bio refinery Assistance Program/Loan Guarantees (Section 9003)
- Rural Energy for America Program Guaranteed Loan Program (REAP) (Section 9007)
- Rural Economic Development Loan and Grant (REDLG)
- Rural Business Investment Program (RBIP)
Housing and Community Facilities Loan Assistance
- Rural Housing Guaranteed Loan
- Rural Housing Direct Loan
- Rural Repair and Rehabilitation Loans
- Mutual Self-Help Loans
- Rural Housing Site Loans
- Farm Labor Housing Loans and Grants
- Rural Rental Housing
- Guaranteed Rental Housing
- Community Facilities Loan Program
THE EXPORT-IMPORT BANK OF THE UNITED STATES (Ex-Im Bank) PROGRAMS
MDI and CDFI Bank lending to local small businesses that export products can be enhanced through a variety of programs offered through the Export-Import Bank of the United States. Ex-Im Bank is the official export credit agency of the United States. Ex-Im Bank's mission is to assist in financing the export of U.S. goods and services to international markets. Ex-Im Bank enables U.S. companies — large and small — to turn export opportunities into real sales that help maintain and create U.S. jobs and contribute to a stronger national economy.
Ex-Im Bank does not compete with private sector lenders but provides export financing products that fill gaps in trade financing. It assumes credit and country risks that the private sector is unable or unwilling to accept. Ex-Im Bank provides working capital guarantees (pre-export financing); export credit insurance; and loan guarantees and direct loans (buyer financing). On average, more than 85 percent of transactions directly benefit U.S. small businesses. Programs of interest to MDI and CDFI banks include among others: U.S. Global Solutions, Working Capital Guarantee, and Global Credit Express.
One-stop shopping for Federal export financing and guarantee programs will soon be within reach for community banks and other stakeholders. Ex-Im Bank will be a participant in U.S. Global Business Solutions, an interagency initiative to expand the reach of federal export assistance and add 50,000 small businesses to the nation's exporter base by 2017. Under the new, multi-agency initiative, several federal agencies collaborated to combine their trade finance programs and export marketing services into a one-stop platform. U.S. Global Business Solutionsis being piloted for six months, beginning in June 2013. A group of diverse lenders will test the program throughout the country. Together, six federal agencies are behind this initiative, including SBA, Ex-Im Bank, Department of Commerce's Commercial Service, U.S. Trade and Development Agency, U.S. Department of Agriculture's Foreign Agriculture Service and Overseas Private Investment Corporation. A full-scale rollout of the pilot is expected in early 2014. For more information on the U.S. Global Business Solutions initiative, contact the SBA representative in your local U.S. Export Assistance Center.
Among other programs available through financial institutions, Ex-Im Bank’s Working Capital Guarantee Program encourages commercial lenders to make working capital loans by providing them with a 90 percent loan guarantee, which decreases their risk. Ex-Im Bank Delegated Authority Lenders - lending partners with whom Ex-Im Bank has agreements - can expedite their loan process by evaluating eligibility against Ex-Im Bank requirements quickly.
Also demonstrating Ex-Im Bank's ongoing commitment to small business exporters is the Global Credit Express Program, specially designed to deliver short-term working capital loans directly to creditworthy small business exporters. Through this program, exporters may be eligible for a 6- or 12-month revolving line of credit of up to $500,000. Global Credit Express adds liquidity to the U.S. small business export market by financing the business of exporting rather than specific export transactions. This is a pilot program currently offered through a select number of Originating Financial Institutions nationwide.
FEDERAL HOUSING ADMINISTRATION (FHA) PROGRAMS
FHA's response to the housing crisis and its role in the current state of housing recovery, according to Moody's Analytics, prevented home prices from falling an additional 25 percent. And, FHA has continued to service its historic target population, insuring 1.2 million single family mortgages worth $213 billion in 2012; 79 percent of which were for first-time buyers and accounting for 50 percent of home purchase mortgages for African-American borrowers, and nearly as many for Hispanic and Latino borrowers.
As outlined during this conference session, several FHA priorities of particular interest to CDFI banks and MDIs include:
- ensuring continued access for otherwise creditworthy people without perfect credit, and those with higher LTV lending, by integrating housing counseling into all programs
- managing distressed assets or legacy assets in a positive way for the customer and the community
- improving rental financing options
Integrated Housing Counseling. HUD’s new Office of Housing Counseling (OHC) has several initiatives to ensure borrowers know their rights and have access to the remedies that will allow them to stay in their homes. In addition, FHA and OHC are exploring ways to further embed housing counseling into the home purchase process, as well as continuing efforts around loss mitigation. The OHC is working with FHA to develop a pilot program to embed Housing Counseling in FHA lending programs to ensure that borrowers are better prepared for homeownership.
Managing Distressed Assets. Managing distressed assets before they get to foreclosure is another priority. In recent months, FHA unveiled its Distressed Asset Stabilization Program(DASP), another Owned Real Estate (ORE) alternative that improves Fund performance. The pilot program allows pools of mortgages headed for foreclosure to be sold to qualified bidders and charges them with helping to bring the loan out of default. In many cases, this is a less expensive alternative to foreclosure and sale as Owned Real Estate (ORE). Under the program, FHA-insured loans are sold competitively at a market-determined price generally below the outstanding principal balance. Once the loan is purchased, foreclosure is delayed for a minimum of six additional months, during which time the new servicer can work with the borrower to find an affordable solution to avoid foreclosure. These loans are purchased at market rate, which is generally well below the outstanding principal balance, giving the investor the incentive to take additional steps to help the borrower avoid foreclosure, including modifications that may include reduced principal balances.
Improving rental financing options. FHA is also proposing to improve rental options as demonstrated through a HUD pilot program for guaranteed financing of small buildings. Under the pilot, HUD would partner with mission-driven lenders, such as CDFIs, to make guaranteed loans on small multifamily rental buildings on a 50/50 risk share basis with HUD.According to the 2010 American Community Survey, nearly one-third of renters live in 5 to 49 unit buildings. These buildings also tend to have lower median rents than larger properties: $400 per month for 5 to 49 unit properties as compared to $549 per month for properties with 50 or more units. Because they are expensive to finance, particularly in this environment, these properties are at risk of divestment.
In line with this effort, HUD is proposing legislative changes to the Section 542(b) Risk Share and Small Buildings program that would allow the Department to explore more flexibility with the program to work with experienced affordable housing lenders and make Risk Share loans on small properties. These proposed changes would allow HUD to enter into Risk Share agreements with qualified lenders – such as well-capitalized Housing Finance Agencies or Community Development Financial Institutions – that have demonstrated experience making loans to support affordable housing and neighborhood stabilization, to make refinance, acquisition or rehab loans available on small properties.