[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]




                    COMMUNITY DEVELOPMENT FINANCIAL
                      INSTITUTIONS (CDFIs): THEIR
                   UNIQUE ROLE AND CHALLENGES SERVING
                       LOWER-INCOME, UNDERSERVED,
                        AND MINORITY COMMUNITIES

=======================================================================

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 9, 2010

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 111-106



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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
MAXINE WATERS, California            MICHAEL N. CASTLE, Delaware
CAROLYN B. MALONEY, New York         PETER T. KING, New York
LUIS V. GUTIERREZ, Illinois          EDWARD R. ROYCE, California
NYDIA M. VELAZQUEZ, New York         FRANK D. LUCAS, Oklahoma
MELVIN L. WATT, North Carolina       RON PAUL, Texas
GARY L. ACKERMAN, New York           DONALD A. MANZULLO, Illinois
BRAD SHERMAN, California             WALTER B. JONES, Jr., North 
GREGORY W. MEEKS, New York               Carolina
DENNIS MOORE, Kansas                 JUDY BIGGERT, Illinois
MICHAEL E. CAPUANO, Massachusetts    GARY G. MILLER, California
RUBEN HINOJOSA, Texas                SHELLEY MOORE CAPITO, West 
WM. LACY CLAY, Missouri                  Virginia
CAROLYN McCARTHY, New York           JEB HENSARLING, Texas
JOE BACA, California                 SCOTT GARRETT, New Jersey
STEPHEN F. LYNCH, Massachusetts      J. GRESHAM BARRETT, South Carolina
BRAD MILLER, North Carolina          JIM GERLACH, Pennsylvania
DAVID SCOTT, Georgia                 RANDY NEUGEBAUER, Texas
AL GREEN, Texas                      TOM PRICE, Georgia
EMANUEL CLEAVER, Missouri            PATRICK T. McHENRY, North Carolina
MELISSA L. BEAN, Illinois            JOHN CAMPBELL, California
GWEN MOORE, Wisconsin                ADAM PUTNAM, Florida
PAUL W. HODES, New Hampshire         MICHELE BACHMANN, Minnesota
KEITH ELLISON, Minnesota             KENNY MARCHANT, Texas
RON KLEIN, Florida                   THADDEUS G. McCOTTER, Michigan
CHARLES A. WILSON, Ohio              KEVIN McCARTHY, California
ED PERLMUTTER, Colorado              BILL POSEY, Florida
JOE DONNELLY, Indiana                LYNN JENKINS, Kansas
BILL FOSTER, Illinois                CHRISTOPHER LEE, New York
ANDRE CARSON, Indiana                ERIK PAULSEN, Minnesota
JACKIE SPEIER, California            LEONARD LANCE, New Jersey
TRAVIS CHILDERS, Mississippi
WALT MINNICK, Idaho
JOHN ADLER, New Jersey
MARY JO KILROY, Ohio
STEVE DRIEHAUS, Ohio
SUZANNE KOSMAS, Florida
ALAN GRAYSON, Florida
JIM HIMES, Connecticut
GARY PETERS, Michigan
DAN MAFFEI, New York

        Jeanne M. Roslanowick, Staff Director and Chief Counsel


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    March 9, 2010................................................     1
Appendix:
    March 9, 2010................................................    43

                               WITNESSES
                         Tuesday, March 9, 2010

Barr, Hon. Michael S., Assistant Secretary for Financial 
  Institutions, U.S. Department of the Treasury..................     3
Barrera, Janie, President and Chief Executive Officer, ACCION 
  Texas-Louisiana................................................    28
Bridges, Dorothy, President and Chief Executive Officer, City 
  First Bank of DC...............................................    30
Bynum, William, President and Chief Executive Officer, Enterprise 
  Corporation of the Delta.......................................    25
Fiddler, Tanya, Vice President of Programs and Operations, First 
  Nations Oweesta Corporation, Cheyenne River Reservation........    31
Gambrell, Donna J., Director, Community Development Financial 
  Institutions (CDFI) Fund.......................................     5
Kennedy, Judith A., President and Chief Executive Officer, 
  National Association of Affordable Housing Lenders (NAAHL).....    33
Moncrief, L. Ray, Executive Vice President and Chief Operating 
  Officer, Kentucky Highlands Investment Corporation.............    27

                                APPENDIX

Prepared statements:
    Carson, Hon. Andre...........................................    44
    Barr, Hon. Michael S.........................................    45
    Barrera, Janie...............................................    49
    Bridges, Dorothy.............................................    52
    Bynum, William...............................................    63
    Fiddler, Tanya...............................................    73
    Gambrell, Donna J............................................    90
    Kennedy, Judith A............................................    98
    Moncrief, L. Ray.............................................   108

              Additional Material Submitted for the Record

Gambrell, Donna:
    Written responses to questions posed by Representative Bachus 
      during the hearing.........................................   117
    Community Development Financial Institutions--Activity in 
      Select House Financial Services Committee Member Districts.   118
    Community Development Financial Institutions Fund, U.S. 
      Department of the Treasury, Responses to Panelist's 
      Proposals, April 16, 2010..................................   165
    Financial Services Provided by Community Development 
      Financial Institutions in Latino Communities...............   177
 

                    COMMUNITY DEVELOPMENT FINANCIAL
                      INSTITUTIONS (CDFIs): THEIR
                   UNIQUE ROLE AND CHALLENGES SERVING
                       LOWER-INCOME, UNDERSERVED,



                        AND MINORITY COMMUNITIES

                              ----------                              


                         Tuesday, March 9, 2010

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 2 p.m., in room 
2128, Rayburn House Office Building, Hon. Barney Frank 
[chairman of the committee] presiding.
    Members present: Representatives Frank, Waters, Watt, Moore 
of Kansas, Baca, Miller of North Carolina, Scott, Green, 
Cleaver, Carson, Childers, Adler; Bachus, Biggert, Jenkins, and 
Lance.
    The Chairman. The hearing will come to order. This is a 
hearing that is mostly about pretty good news, so that is why 
not many people are here. We are better at complaining than 
praising. And the media also pays more attention to criticism 
than to good words.
    But the Community Development Financial Institutions 
Program is an example of something that works well. And, in 
particular, there have been suggestions that when the Federal 
Government tries to intervene to help lower-income communities 
and individuals in various ways, that somehow causes problems. 
The record, I think, is very clear that is not the case. If it 
is done well, this is very constructive.
    And we are, therefore, pleased to have before us today two 
panels: first, those from the Administration; and second, a 
group of practitioners. I look forward to hearing from them.
    The gentleman from Alabama is now recognized for his 
opening statement.
    Mr. Bachus. I thank the chairman.
    I appreciate you holding a hearing on the CDFI Fund, and I 
appreciate our witnesses being here.
    The program dates back, or my interest in the program dates 
back to my days as chairman of the committee's Oversight and 
Investigations Subcommittee in the late 1990's, when the 
Oversight Subcommittee led an investigation that uncovered 
serious irregularities and conflicts of interest in the Fund's 
process for awarding grants. And that investigation resulted in 
the resignation of the agency's two top officials and led 
Treasury to adopt a number of reforms to address the abuses 
identified by the subcommittee.
    While I am confident that the fund is now being operated in 
a far more professional and transparent manner than was the 
case back then, I still have concerns about the program's 
effectiveness that I hope can be explored in today's hearing.
    Community Development Financial Institutions are a source 
of subsidized capital to communities that face difficulties 
attracting funds for economic development. But the subsidy that 
the government provides is not free. We need to ensure that the 
CDFI Fund program is properly administered so that funds are 
provided to individuals and entities that both have productive 
uses for it and would otherwise not have access to financing.
    CDFIs have a proven track record of providing economic 
development dollars to underserved communities. According to 
the Treasury Department, CDFI initiatives created or maintained 
more than 70,000 full-time jobs. This success should not, 
however, lead to looser standards. I hope our witnesses today, 
particularly the Treasury Department, will be able to be 
discuss the operational improvements that can be implemented as 
the CDFI Fund program evolves.
    Finally, even though the program has had some successes in 
promoting capital investment in underserved communities, it 
would be wrong to redirect TARP money to this program. TARP was 
established to stabilize the financial system in a time of 
extreme market disruption. Given the alarming deficits that the 
country is running, the extraordinary measures that were taken 
during the financial crisis should be wound down as soon as 
practical, and that includes TARP.
    And I am sure you all heard Doug Elmendorf, the CBO 
Director--I shouldn't go off the record, should I--say 
yesterday that we were in unfamiliar territory as far as the 
debt was involved and the deficit, so that ought to be a wake-
up call to all of us. And of course, Federal Reserve Chairman 
Bernanke testified to us just in the past weeks that our debt 
and deficit was unsustainable. So, given these alarming 
deficits that the country is running, the extraordinary 
measures that were taken during the financial crisis should be 
wound down, and that includes TARP. It is time for the 
government to get out of the private market and let American 
businesses innovate and spur economic growth without the fear 
of government intervention.
    I yield back the balance of my time.
    The Chairman. The gentleman from Georgia is recognized for 
2 minutes.
    Mr. Scott. Thank you, Mr. Chairman.
    This is indeed a timely hearing. With this very devastating 
economic dilemma we are in, minority communities are profoundly 
impacted, probably 2 to 3 times as devastating as the remainder 
of the economy is doing. And so we know that the economy is 
really going through some woes, so you can imagine what the 
minority communities are going through.
    The one good thing about the CDFIs is this: You are 
targeted. You are purposeful at a time we need targeted, 
purposeful, focused resources targeting these minority 
communities. In my own State of Georgia, we have 18 of you 
doing a wonderful job, and 67 percent of that impact is 
impacting in the urban areas, 44 percent of that impacting 
minorities. I think this is crucial because the timing is 
important.
    The Treasury Department, from my information, is looking to 
reauthorize the CDFIs, so it is very important that we have 
this hearing, that we hear from you what you are doing, how 
well you are doing, what more you can do, how many more 
resources you need. And it is also important to share with us 
how you measure your success, so that there can be no argument. 
You can say you are successful, but we need to know how you 
measure that. What determines your success, and what would it 
be like if you were not there helping these communities? What 
would it be like for them?
    Because the history of it is that these CDFIs came about 
because of the outmigration of White communities. These 
communities became African American in many cases, and when the 
White community left, the banks left, and they were 
underserved. You came in, and you filled that void.
    This is a very important hearing, Mr. Chairman. Thank you 
very much. I yield back the balance of my time.
    The Chairman. The gentleman from Texas is recognized for 2 
minutes.
    Mr. Green. Thank you, Mr. Chairman.
    I thank the witnesses for appearing. And I am especially 
grateful to the President. President Obama has made a request 
for an additional $250 million in appropriations for the CDFI 
Fund for 2011. And I want to compliment the President for 
making such a request. It is obvious that these institutions 
have served us well, served us well, by the way, at a time when 
many other institutions were not serving us well. And I think 
that bodes well for what the institutions represent.
    They do this, many times, on a shoe-string budget, in 
communities that are thought to be such that they cannot afford 
loans, cannot repay loans. But they continue to defy the odds, 
and they continue to make a difference in the lives of real 
people. I compliment the President and look forward to this 
hearing today. I have many questions that I would like to ask 
about the CDFIs, and I look forward to your answers.
    Thank you, Mr. Chairman. I yield back the balance of my 
time.
    The Chairman. I thank the gentleman.
    The Chairman. And we will now begin.
    Our witnesses for the first panel are: Michael Barr, who is 
the Assistant Secretary for Financial Institutions at the 
Department of the Treasury; and Donna Gambrell, who is the 
Director of the CDFI Fund. Mr. Secretary?

STATEMENT OF THE HONORABLE MICHAEL S. BARR, ASSISTANT SECRETARY 
  FOR FINANCIAL INSTITUTIONS, U.S. DEPARTMENT OF THE TREASURY

    Mr. Barr. Thank you very much, Mr. Chairman, Ranking Member 
Bachus, and members of the committee.
    This committee has a long and bipartisan history of support 
for the Community Development Financial Institutions Fund and 
CDFIs across the country. I want to thank you for the 
opportunity to testify today about the role of CDFIs in growing 
small businesses, in creating jobs, and in assisting economic 
recovery in distressed communities across the United States.
    As we emerge from the worst economic crisis in generations, 
the Administration is focused on spurring greater job growth, 
ensuring that the recovery is firmly established. CDFIs are a 
critical and important piece of our broader commitment to an 
inclusive recovery. CDFIs provide capital, credit, and 
financial services to hard-to-reach communities and underserved 
populations. In both rural and urban America, they assist 
entrepreneurs and small businesses that are the vital engines 
of growth.
    In today's economic climate, CDFIs' support to small 
business is more critical than ever. CDFIs report providing 
financing to over 10,000 businesses and over 1,600 commercial 
real estate properties in 2008. CDFIs also reported that they 
helped to create or maintain over 70,000 full-time jobs in that 
period. CFDIs are also able to reach underserved communities 
through innovative, responsible, affordable financial products 
and services. And the CDFI Fund has provided CDFIs with the 
necessary capital to spur innovation in the sector.
    Take the example of one CDFI Fund award recipient, the 
North Side Community Development Credit Union in Chicago. North 
Side has developed an affordable small-dollar consumer loan 
which has saved community residents over $5 million compared to 
the alternatives.
    The current economic environment has strained the resources 
of many CDFIs. They have also, at the same time, seen a 
dramatic increase in requests for their lending services, as 
other sources of credit have dried up. However, CDFIs have 
faced constraints in meeting that increased demand, in 
particular, a decrease in available funding from their primary 
funding sources. We strongly believe that further support is 
needed for CDFIs to help distressed communities manage through 
the economic downturn.
    We have already worked with this committee, with all of 
you, to increase support for CDFIs through the Recovery Act, 
under which the Fund disbursed $98 million in awards within 160 
days of enactment. That Act also provided the Department with 
an additional $1.5 billion in New Markets Tax Credit allocation 
authority for both Fiscal Years 2008 and 2009. We have recently 
announced a new program under EESA, the Community Development 
Capital Initiative, to extend low-cost capital to CDFI 
depositories and holding companies, including banks, thrifts, 
and credit unions.
    And as we begin to emerge from this financial crisis, our 
Nation's distressed communities and the CDFIs that serve them 
will likely continue to lag behind broader economic growth. 
That is why it is so important to bolster the CDFI field 
capacity, as the President has suggested doing in the Fiscal 
Year 2011 budget. That budget requests $250 million for the 
CDFI Fund, including $140 million to the Fund's Financial and 
Technical Assistance Awards and $12 million in funding for 
Native communities.
    We have made hard choices in the Treasury's budget. While 
not proposing funding this year for either the Capital Magnet 
Fund or for Bank Enterprise Awards, we have proposed two new 
initiatives. First, the budget request seeks $50 million for a 
Bank on USA initiative which will promote financial education, 
broader access to bank accounts, and other financial services 
to help families meet their financial needs and build savings.
    Second, the budget requests funding for CDFI's 
participation in a new multi-agency effort, the Healthy Food 
Financing Initiative. This initiative will help provide the 
financing necessary to increase the availability of affordable 
healthy foods in underserved urban and rural markets. Treasury 
will devote $250 million of New Markets Tax Credit authority 
and $25 million in CDFI Fund Financial and Technical Assistance 
awards to this initiative.
    In addition, we have requested $5 billion in New Markets 
Tax Credit authority for both Fiscal Years 2010 and 2011, and 
we have proposed allowing this authority to be offset against 
AMT liability. We are also working with the IRS on further 
reforms to make the credit work smoothly for small businesses. 
We look forward to working with the committee to support the 
CDFI Fund's work to help distressed communities weather the 
economic downturn and to support an economic recovery that 
reaches all Americans.
    Thank you very much.
    [The prepared statement of Assistant Secretary Barr can be 
found on page 45 of the appendix.]
    The Chairman. Ms. Gambrell?

STATEMENT OF DONNA J. GAMBRELL, DIRECTOR, COMMUNITY DEVELOPMENT 
               FINANCIAL INSTITUTIONS (CDFI) FUND

    Ms. Gambrell. Good afternoon, Chairman Frank, Ranking 
Member Bachus, and distinguished members of the House Financial 
Services Committee. It is a pleasure for me to be here today to 
discuss the CDFI Fund. The CDFI Fund was established in 1994, 
and our mission is to promote economic revitalization and 
community development in low-income communities, primarily 
through investments and assistance to CDFIs.
    There are several types of CDFIs: community development 
banks; thrifts; credit unions; loan funds; and venture capital 
funds. All of them specialize in serving low-income communities 
that lack access to credit, capital, and financial services 
from mainstream financial institutions. CDFIs are often the 
only institutions in their community that offer retail banking 
services and responsible loans for small businesses and micro 
enterprises, affordable housing projects, and community 
facilities. They also provide additional services, such as 
technical assistance for small businesses, and credit 
counseling and home buyer education to help borrowers use 
credit effectively.
    Since the onset of the recent economic crisis, the CDFI 
Fund has been called upon to play an even larger role in 
promoting economic recovery in communities that have been 
hardest hit by the recession. Congress and the new 
Administration have taken significant steps to expand our 
impact.
    We at the CDFI Fund have been mindful of the tremendous 
responsibility that we have been given in the midst of the 
economic crisis, and our recent accomplishments bear witness to 
our commitment of being a critical part of the Administration's 
strategy that brings economic recovery to all. When the 
recession first deepened, the CDFI Fund created a new advisory 
board subcommittee to assess the impact of the economic crisis 
on CDFIs.
    We have already made significant progress in implementing 
many of their critical recommendations. We have streamlined key 
business processes to enable us to get funds to the communities 
that need them more than ever. On average, we now disburse 
awards--a process which used to take over 12 months--in 60 
days. We now make decisions on all new applications for CDFI 
certification within 90 days.
    Our actions implementing the Recovery Act were nothing 
short of extraordinary. Less than 100 days after the enactment 
of the Recovery Act, we announced financial assistance awards 
to 59 CDFIs and 10 Native CDFIs. Just 2 months later, we 
disbursed all $98 million. As Assistant Secretary Barr stated, 
the performance of the CDFI industry has been equally 
impressive. CDFI Fund awardees financed more than 10,000 
businesses and created or maintained more than 70,000 jobs 
reported in 2009. These numbers speak volumes about the CDFI 
industry's resilience, commitment, and creativity in 
challenging times.
    But I encourage you to look beyond the numbers, for there 
is much more to the story than statistics alone. Each business 
financed, each job created, and each home purchased represents 
a critical step in the transformation of a life, a family and a 
community, and that is what the work of CDFIs and the CDFI Fund 
is really all about. It is about changing lives and building 
stronger and more productive communities. It is about creating 
opportunity and giving hope.
    As we celebrate the 15th anniversary of the creation of the 
CDFI Fund, this is an opportune time not just to reflect on 
what we have accomplished but to look forward and envision the 
steps we need to take next to create opportunity in our 
Nation's most distressed communities.
    We have recently released a request for public comments and 
plan to take a thorough review of our entire authorizing 
statute, looking not only at technical and substantive 
revisions to existing provisions but also to provisions that 
have not yet been fully utilized.
    But some of our next steps are already clear. The 
President's Fiscal Year 2011 budget builds on the CDFI Fund's 
recent momentum and requests $250 million in funding. In 
addition, it proposes two exciting new initiatives in which the 
CDFI Fund will play a key role: the Bank on USA Initiative; and 
the Healthy Food Financing Initiative. These are just a few 
initiatives that we hope to undertake in the near future and 
beyond. Many more must follow, and we stand ready if Congress 
were to ask us to increase our role in serving low-income 
communities.
    Since the first days of the economic crisis, the CDFI Fund 
has answered the call to assist in the Nation's recovery, and I 
can assure you that we are prepared to continue answering that 
call. This concludes my testimony. On behalf of the CDFI Fund, 
I would like to express our gratitude for the support of 
Congress and the Financial Services Committee. We look forward 
to continuing to work with you in the future.
    [The prepared statement of Director Gambrell can be found 
on page 90 of the appendix.]
    The Chairman. I will begin by asking, because there is a 
whole complex of programs that we have been putting forward 
that aren't always sorted out in the public mind, and I know 
this is not the Community Reinvestment Act, but would either of 
the witnesses or both want to discuss, is there an interaction 
between this program and the Community Reinvestment Act?
    Mr. Barr. I could say a word or two, and then maybe 
Director Gambrell would want to follow up.
    The CDFIs out in the communities often rely, as a source of 
funding, on mainstream banking organizations. And those banks 
can obtain positive consideration under the Community 
Reinvestment Act for their investments in CDFIs across the 
country. So the presence of CRA likely increases the flow of 
capital to CDFIs from mainstream banks.
    The Chairman. Ms. Gambrell?
    Ms. Gambrell. We have seen financial institutions, Chairman 
Frank, contribute to CDFIs in a number of different ways. Some 
provide deposits in these organizations. Others actually 
collaborate with them on initiatives, such as affordable 
housing projects, small business development finance, and job 
creation programs, as well as counseling services, home buyer 
services, and financial education. So there are a number of 
ways in which traditional financial institutions have also 
partnered with CDFIs in a very substantive way.
    The Chairman. A number of us, my colleague, Ms. Waters, who 
has joined us, and others, have felt, and we will begin the 
examination of that this year, that there is an argument for 
expanding the reach of the Community Reinvestment Act, because 
when it was originally enacted in 1977, it covered a much 
higher percentage of our financial institutions because of the 
diversification. So what I take from what you are saying is 
that if we were to expand the scope of the CRA, that could 
provide additional funds for the CDFI program?
    Mr. Barr. I think that it is certainly the case, Mr. 
Chairman, that with respect to the banking organizations that 
have traditionally funded CDFIs, one of the reasons they have 
often cited for the extent of their engagement, in addition to 
other factors, is the Community Reinvestment Act.
    As Director Gambrell indicated, they also appreciate the 
ability to co-invest with CDFIs as a way of reducing risks that 
they take. And so that package of activities has been 
beneficial to them.
    The Chairman. My final question is, we have heard, I 
believe, wildly inaccurate imputations to the Community 
Reinvestment Act of responsibility for mortgages that shouldn't 
have been made. Now CDFI has a pretty good record. The ranking 
member mentioned a time earlier when there were problems. We 
have not in this current set of rules found too many people 
coming forward who want to be critical. I wonder, to the extent 
that the Community Reinvestment Act is sometimes blamed for 
things which I think there is no basis for, in the interaction 
between CDFI and CRA, would anybody have any basis to claim 
that this has led to imprudence of any kind?
    Mr. Barr. I think the record is reasonably that with the 
experience of CDFIs in low-income communities, that they are 
able to make loans that are more difficult for other 
institutions to make. There certainly have been losses in low-
income communities, as there have been in many communities 
across the country, given the financial crisis that we are in. 
I wouldn't think that those are linked in any way to CRA.
    I think that if you look at the record under CRA, the 
Federal Reserve data, with respect to CRA, suggests that it 
really is not linked to the subprime crisis that we just 
experienced. That subprime crisis really started with a 
fundamental lack of a level playing field with respect to 
underwriting standards and a race to the bottom in our country. 
So that is where I would suggest the problem lies.
    The Chairman. The gentleman from Alabama.
    Mr. Bachus. Thank you, Mr. Chairman.
    The Chairman. Ms. Gambrell, do me a favor, because I made a 
big thing about--stop the clock. The light that tells members 
on this side when their time is expired, we obscured it with 
your name tag. Would you just push that little doo-hickey 
there? All right. There we go. Thank you.
    Mr. Bachus. She can wait till after I am through 
questioning. You can cover it back up till I am through.
    Thank you, Mr. Chairman.
    Given the relative stability, well, I don't know. Let me 
just ask this: Is it appropriate to use TARP funds, Mr. Barr, 
to fund CDFI?
    Mr. Barr. Sir, our judgment, Mr. Bachus, was that, given 
the financial crisis that we have just come through and the 
instability in the financial sector, including in small banks, 
community banks across the country, community thrifts across 
the country, and Community Development Banks across the 
country, that it was important to offer a support under the 
Economic Stabilization Act for those institutions. And CDFIs 
are one of the kinds of institutions, including community 
banks, that we thought it was really important to provide 
assistance for. So I do think, in our judgment, we need to 
weigh taxpayer concerns always, but the overriding goal that 
Congress gave us with respect to financial stability, we 
thought it was an appropriate aspect of our community bank 
efforts.
    Mr. Bachus. I understand that there is still economic 
instability and challenges in those communities.
    I saw Danny Davis mentioned in your testimony, Director 
Gambrell. He said it is, ``the community of need in search of a 
sea of opportunity'' or something. But I am just, is TARP, 
which was envisioned as a temporary program, and not always 
probably directed towards the smallest in regional communities, 
but I am not sure, I don't think it was ever envisioned as to 
start using that as opposed to the appropriation process.
    Mr. Barr. Well, I think those are completely separate 
issues.
    I would agree with you, Mr. Bachus, that the appropriations 
process is to support the CDFI Fund's ongoing work in 
supporting CDFIs across the country.
    The Emergency Economic Stabilization Act is for an 
emergency. It is a temporary program. The program that we have 
set up, the initiative we have set up for CDFIs is a temporary 
program. It is not a substitute for appropriations in any way. 
It is designed, as are our broader programs, for community 
banks--to deal with the fact that it is not just big banks that 
got hit by the financial crisis.
    In fact, the financial crisis caused enormous harm to 
community banks and thrifts across the country. And that is why 
we think, given the emergency situation, that was an 
appropriate use of EESA funding consistent with what Congress 
asked us to do.
    Mr. Bachus. Were there some CDFI institutions--not the 
banks--that participated directly in TARP?
    Mr. Barr. Under the initial community bank program, there 
were some CDFI banks and thrifts that participated in that 
program.
    Mr. Bachus. But they were all banks or thrifts?
    Mr. Barr. Excuse me, sir?
    Mr. Bachus. They were all banks or thrifts?
    Mr. Barr. Under the initiative that we announced recently, 
the institutions that are eligible are insured depositories. 
They have to be a credit union, a bank or a thrift. That is 
consistent with the community bank program from before.
    We are looking at whether there are ways to assist with the 
instability in the loan fund sector, but that is not something 
that was part of what the President announced or what the 
Secretary announced.
    Mr. Bachus. And these are for the 2 percent loans 
basically? Is that what--
    Mr. Barr. It is 2 percent--capital with a 2 percent 
dividend rate; up to 5 percent risk weighted assets under the 
program.
    Mr. Bachus. Okay. Tell me about Bank on America. Do either 
one of you want to comment on that? I know that it is a real 
problem in all communities, really, but obviously, it impacts 
our lower-income communities.
    Ms. Gambrell. Correct.
    Mr. Bachus, the Bank on USA Initiative is focused on--and I 
think we all understand the impact in these communities that 
suffer from very high fees, have been victims of predatory 
lending, do not have affordable consumer products and services 
that are available. This initiative is to look at ways in which 
we can replicate models across the country, through 
partnerships with State and local government, nonprofit 
organizations, CDFIs, and others that will provide the kind of 
access to credit, bringing those populations into the economic 
mainstream by creating and maintaining bank accounts, savings 
accounts, individual development accounts, and other types of 
services.
    So there are a number of components to the initiative 
itself, but the underlying, and I think, the most critical 
piece is really looking at ways in which we can identify those 
low-income populations, or low-income communities and help 
bring people into the financial mainstream.
    Mr. Bachus. I am not sure we have trouble identifying them. 
We know there is--but I do know the need for that.
    I thank you.
    Ms. Waters. [presiding] Thank you very much.
    I would like to try and determine where the CDFI Funds are 
actually going and whether or not they are really impacting the 
poorest communities in our country. I don't know if you have 
done the kind of research that would match up your CDFI effort 
with the poorest areas in the country so that you would be able 
to say that, for example, there are CDFI institutions in 
Tupelo, Mississippi, where the poverty rate is so-and-so. Have 
you done that kind of look at where the funds are going?
    Ms. Gambrell. Thank you for the question, Congresswoman 
Waters.
    Our CDFI customers, when you look at the demographics, you 
can see that: 70 percent of them are low income; 60 percent are 
minority; and 52 percent are women. Of the 824 certified CDFIs 
that exist, we have CDFIs in every State of the country. As 
part of their certification, when they come to Treasury to be 
certified, one of the criteria that they have to meet is that 
they have a commitment to, in fact, serve those low-income 
areas substantively. So as we continue to do our research, as 
we continue to get reports from the CDFIs, we certainly see 
that they are serving those communities in very substantive 
ways.
    And you will certainly hear in the second panel ways in 
which that is done. But clearly, they are doing the work that 
they need to do to make sure that these communities' needs are 
met.
    Ms. Waters. Ms. Gambrell, one of the things you are going 
to find from many of the members of this committee is a real 
effort to determine where the resources are going that we work 
for. For the members who are present here today, they represent 
many of the areas that have not benefitted from many of the 
programs we have fought for. Some of us were here when we 
created the CDFI, but some of us look at our districts, and we 
are not so happy.
    So as we look at everything that we do in government, 
whether it is stimulus money or CDFI funds, we are beginning 
now to evaluate whether or not the work that we do is reflected 
in how those communities either benefit or do not benefit from 
our efforts.
    So one of the things I would like to do is, not for 
everybody on the committee, but for the members who are here 
today, we have 1, 2, 3, 4, 5, 6 members who are present, 7 
members, coming in with Mr. Scott. I would like to do an 
evaluation of each of these seven districts as it relates to 
your CDFI efforts. I would like you to take each of these 
districts. We will make sure you get the names and the 
districts of all the members who are present now. Any more 
coming in, they are not going to be added. And we would like to 
know exactly what is happening in each of our districts, not 
only--I think as I look here, the way that you have divided up 
the institutions that are available for the utilization of CDFI 
funds, it looks as if it is banks and credit unions, and then 
you have some kind of committees, etc. I want to see all of 
those in our districts, how each of those organizations work 
and whether or not we are getting the benefit of the CDFI 
program.
    Ms. Gambrell. And we would be happy to share that 
information.
    Congresswoman, I have also met with several of the members 
here already, provided that information to them. But we would 
be happy to do that again.
    Ms. Waters. Okay. Just put it all in one big package so I 
can look at it, too.
    Ms. Gambrell. Okay. Certainly.
    [The information requested by Representative Waters can be 
found on page 118 of the appendix.]
    Ms. Waters. I thank you very much for that.
    And I am going to move on to our next member of the 
committee, Mr. Mel Watt.
    Mr. Watt. Thank you, Madam Chairwoman.
    And I want to express my thanks to the chairman of the full 
committee for convening this hearing.
    I actually have had the opportunity to meet one-on-one with 
Director Gambrell, and raised some questions with her, which 
she has been kind enough to respond to in writing. One of the 
concerns that I have expressed over the years is the extent to 
which people, community development institutions which ought to 
be a CDFI are actually getting into the Fund, on the one hand, 
and the extent to which the ones that are certified as CDFIs 
are using the fund, using what is available to them, on the 
other hand.
    I have had some discussions with Ms. Gambrell, and we are 
going to reach out to some of the institutions in my 
congressional district to try to get them more focused on the 
benefits of what is available. One of the things we have found 
is that, especially in the last couple of years, when things 
have been so tough, most people who are interested in day-to-
day survival, you spend so much time surviving day to day, that 
you don't always look at the other opportunities that might be 
available that where you are doing more forward-looking and 
global evaluation of opportunities that might help you to 
survive day to day.
    So I have already had discussions with, just yesterday in 
fact, Ms. Gambrell. You will be happy to know that I had a 
discussion with Ms. Saunders over at Mechanics and Farmers 
Bank, and told her that I was planning to send her some 
information. So I have had my opportunity to talk with Ms. 
Gambrell.
    I do want to ask, because one of the things Ms. Gambrell 
has provided to me is the criteria for the new program that the 
President just announced. And I wanted to get Mr. Barr's 
assessment of whether that has been out there long enough for 
you to make even a preliminary assessment of the willingness or 
apparent willingness of CDFIs, and non CDFIs, I guess, would 
also be eligible to use that program, because a lot of the 
impediments that we thought were out there that were keeping 
financial institutions from using the top moneys and getting 
involved with these programs, some of those seemed to have been 
stripped away. Has that had any impact that you have discerned 
yet? Does it seem like this is going to be successful?
    Mr. Barr. Well, I think, Representative Watt, that what we 
did in designing the program really from last fall through the 
announcement was spend an enormous amount of time with CDFIs 
across the country, hearing their concerns, listening to their 
needs, and trying to design a program structure that was going 
to be responsive to the kinds of concerns that had been 
expressed to us. We had been told by them that the program we 
have announced will be useful to them. It is too early for us 
to judge, as an empirical matter, whether the institutions 
coming in are going to be able to use the program. We are very 
encouraged by the conversations we have had. We are very 
encouraged by the interest we have had. The applicants for the 
program will need to come in during the month of April, so 
quite soon, and then we will have a much better empirical sense 
of the scope, scale and effectiveness overall of the program.
    Mr. Watt. How long will the processing time be for you to 
get somebody started on this new program and get them approved?
    Mr. Barr. I think the process should be quite rapid. They 
do need to check with their primary Federal regulator, again, a 
basic taxpayer protection. But with respect to the Treasury 
part of the program, we made the form quite simple. It is a 
one-page form. It is available online. We have been working to 
expedite the processing to set it up in advance so that it is 
quite streamlined, particularly for smaller institutions, the 
community banks and thrifts across the country, the CDFIs 
across the country. So I am encouraged by that. But the proof 
will be in the pudding. We will come back to you and show you 
what we have done.
    Mr. Watt. Thank you, Mr. Chairman. I yield back.
    The Chairman. The gentleman from Kansas.
    Mr. Moore of Kansas. Thank you Mr. Chairman.
    At a hearing a few weeks ago which focused on job creation, 
the economist Mark Zandi included in his testimony a chart of 
what kind of multiplier effect various types of spending 
proposals would provide.
    Along the same lines, Assistant Secretary Barr, I 
appreciate the statistics you provide that, ``CDFIs reported 
providing financing to over 10,000 businesses and over 1,600 
commercial real estate properties in 2008.'' In a time when the 
commercial real estate market is under immense pressure, I am 
sure you agree this financing can only help stabilize the 
market, even if in a small way. You also point out that CDFIs 
also report they help create or maintain over 70,000 full time 
jobs in this period. How can Congress build on these successes 
we have seen with CDFIs? Are there improvements or other ways 
CDFIs can maximize their economic impact?
    Mr. Barr. Thank you, Representative Moore.
    I will start, and then Director Gambrell will add a few 
remarks.
    I fully agree with you. I think CDFIs can be an important 
additional financing tool on the commercial real estate market. 
And for small businesses and entrepreneurs across the country, 
they have a proven track record in doing that. I think we are 
able to get the funding at the President's request for CDFI, 
which is $250 million for 2011. That will be a really strong 
statement of the Congress standing behind small businesses and 
small business growth.
    I think if we can get the New Markets Tax Credit that we 
have asked for, for 2010, which is still pending, if we can get 
that done for this year, together with a fix to permit New 
Markets Tax Credits to be offset against AMT liability, that 
will be another big boost for small business growth, and the 
same with 2011 for the New Markets Tax Credit.
    We have a number of initiatives we are trying to pursue. 
The Healthy Food Financing Initiative will help entrepreneurs 
provide green grocer kind of activities in distressed 
communities and help rural areas with farmers bringing their 
food to market. So I think it is a win/win for everybody, and 
we welcome working with you on it.
    Mr. Moore of Kansas. Thank you.
    Ms. Gambrell, do you have anything to add?
    Ms. Gambrell. Congressman Moore, thank you very much.
    I think when you look at the CDFI industry, clearly they 
want to continue to grow. That growth is very important to 
them. The expansion of CDFIs continues to be an important 
priority for us as well. So as we move toward the future, I 
think it is very important for us to look at those 
organizations that continue to do that good work in 
communities, have an opportunity to become certified CDFIs to 
take advantage of our funding, and for us to have that 
continued support to make sure we are helping CDFIs continue to 
grow. The leveraging that CDFIs do is extraordinary in terms of 
how they are able to use our funding. They are able to get the 
money out quickly and effectively into those communities. And I 
think that, again, their track record is something that we need 
to continue to support.
    Mr. Moore of Kansas. Thank you.
    While a budget request to increase appropriations for the 
CDFI Fund by $250 million might not seem like much when we have 
gone through a major financial crisis and painful recession 
which has cost hundreds of billions of dollars, I hope the 
additional resources can be used effectively to the fullest 
extent possible. What oversight and fraud prevention mechanisms 
are currently being used or should be utilized to minimize any 
waste or fraud with the use of these funds? Either one of you, 
please.
    Ms. Gambrell. Congressman Moore, we thank you for the 
question. We have a number of systems in place within the CDFI 
Fund. Not only do we see the applications at the front end and 
have specific criteria for how we are actually assessing those 
institutions, but within the Fund itself, we have a Compliance 
Monitoring and Evaluation Unit that does on-site examinations, 
assessments, as well as internal assessments of those CDFIs. We 
get a lot of information from CDFIs through the year as well.
    In addition to their annual reporting, they are continually 
providing good information to us based on audit statements and 
other types of self assessments that they are doing as well. So 
we believe that we have the infrastructure in place to make 
sure that we have good information about the CDFIs, and that we 
clearly understand their soundness as they, again, continue to 
do the work that they do.
    Mr. Barr. And I should just add, Representative Moore, that 
in the CDFI Fund budget for 2011, within the $250 million, 
there is important additional money to be sure that we have the 
infrastructure in place, the systems in place to continue that 
strong record.
    Mr. Moore of Kansas. My thanks to the witnesses.
    I yield back, Mr. Chairman.
    The Chairman. I thank the gentleman.
    The gentleman from California, Mr. Baca.
    Mr. Baca. Well, thank you very much, Mr. Chairman, for 
having this hearing.
    And I want to thank the minority ranking member.
    The first question I have is, I want to start off by 
talking about the Small Business Lending Initiative that was 
announced a few weeks ago by the Administration. It is my 
understanding that the regulators will have a large role in 
deciding who is able to participate and receive funds from that 
initiative. My fear is that the Funds will have a limited role, 
and I state, a limited role in that process, and the regulators 
will be unable to accurately assess which institutions can and 
should take advantage of it.
    Question number one, can you comment on the role that CDFI 
Funds will have in this process?
    And then question number two, who will have the final say 
in this process, the CDFI Fund or the regulators?
    Mr. Barr. Under the program that was announced, consistent 
with prior programs announced within the Office of Financial 
Stability, the credit union, bank, and thrift regulators need 
to make a determination that the institution is operating in a 
safe and sound manner. Under the CDCI initiative that was 
announced, in making that assessment, the regulators will take 
into account the ability for these CDFIs to reach that safe and 
sound level using a matching fund, so not simply through 
private capital, but can use Treasury funds up to a one-to-one 
match to reach that appropriate level. So we think that that 
combination of insurance taxpayer protection, with Treasury 
matching to viability will be a quite strong measure for those 
funds going in. That program, then, once there is a bank 
regulator review, that will go to the Office of Financial 
Stability for final approval within the Treasury Department.
    Mr. Baca. So who will actually make the final decision 
then?
    Mr. Barr. It goes from the bank regulators to the Office of 
Financial Stability, and that decision is made at that point by 
the Office of Financial Stability.
    Mr. Baca. Okay.
    I also want to talk about the CDFIs creation. It is my 
understanding that there are 4 Hispanic, and I state, 4 
Hispanic-focused CDFIs in existence now, out of 1,200. Why are 
there only 4 out of 1,200 CDFIs that are Hispanics? Can you 
answer that? Why only four?
    Ms. Gambrell. Congressman Baca, thank you.
    I don't have that number, and in fact, I will have to get 
the exact number. We are constantly looking at the number of 
newly-certified CDFIs. I think we have, especially this year, 
done some significant outreach, particularly to Latino 
community organizations as well, Latino communities, to really 
talk about and really encourage them to look at our programs 
and look at the benefits of becoming a certified CDFI. So if I 
could, I would like to get back with you on the list that we 
have as well of those Latino organizations. But I can say 
this--
    [The information requested by Representative Baca can be 
found on page 177 of the appendix.]
    Mr. Baca. Yes, I know which four exist right now. But 
beyond that, that is only 4 out of 1,200. And yet we are 
looking at our population being 17 percent total population of 
the United States, and then approximately, will be about 25 
percent by the year 2030. So if we are lagging behind, we need 
to begin to start looking at providing the service to an 
underrepresented community right now.
    Ms. Gambrell. That is correct. And our interest is looking 
at the diversity of those pool of organizations that are 
certified CDFIs. And also, of course, we look at the CDFIs and 
the community that they serve. So it is, for us, we want to be 
sure that the priorities are in two areas: that we have a good 
robust pool of certified CDFIs that are serving communities, 
including Latino communities; but also, the CDFIs that exist 
already, we want to be sure that they are also looking at those 
communities, identifying the needs and then providing products 
and services. We think that certainly, on one hand, certified 
CDFIs that already exist are doing that again in a very 
significant way.
    Mr. Baca. Okay, if I may continue my questioning, because 
my time is almost up. I see the yellow light.
    However, we know of other organizations that focus on 
minority business development interest in creating CDFIs that 
currently provide technical assistance but lack appropriate 
lending facilities. Given the value of CDFI small business 
lending programs, have you explored the possibility of 
accelerating the application process or narrowing other 
requirements like time requirements for financial activity in 
order to approve or consider those entities that would 
otherwise qualify?
    Ms. Gambrell. One of the things that we are doing, 
Congressman, is that we are continually looking at our internal 
processes. So we have reduced the amount of disbursement time 
that it takes to get awards out. We have reduced the amount of 
time that it is taking organizations to get certified. We think 
that there is always room for improvement and that we can do 
more. But in many ways, we have in this past year, in 
particular, decreased the amount of processing time anywhere 
between 50 and 75 percent. The Fund has a long reputation of 
working very efficiently and quickly to get money out the door, 
to get funding out the door, and we will continue to look for 
ways in which we can do an even better job.
    Mr. Baca. So when should we come back and assess you and 
evaluate to see what processes you have done?
    Ms. Gambrell. One of the things that we are putting into 
place in this current round is that we are looking at 
streamlining our applications, making that a little bit easier 
for organizations that are applying for our funding, cutting 
down on the amount of paper, which is always, I think, a 
welcome from any organization that is applying for funding. We 
are looking at ways in which we can have even greater impact in 
communities for those organizations that are receiving funding 
from us. So I would ask that you take a second look after this 
round is through, this current round is through, because I 
think we will clearly see some improvements as well.
    Mr. Baca. Thank you.
    The Chairman. I am going to ask, by the way, Ms. Gambrell 
has promised to give further information. I noticed in several 
of the statements that we have afterwards, there were some very 
specific proposals made, and so I will ask the Secretary and 
the Director to respond to those to us in writing. There were 
some specific proposals that we asked for about how to improve, 
change, some legislative, some administrative, so we will ask 
you to review those and get back to us.
    [Responses to panelist's proposals can be found on page 165 
of the appendix.]
    The Chairman. The gentleman from Georgia.
    Mr. Scott. Yes. How does the CFDI--
    The Chairman. I apologize. We have been joined by a member 
on the other side, the gentleman from New Jersey.
    Mr. Lance. Thank you, Mr. Chairman.
    And good afternoon to you all. I think it is clear that the 
Community Development Financial Institutions have been 
successful in bringing greater capital and investment into 
America's economically distressed areas. And I cannot imagine 
that there is a congressional district anywhere in the United 
States that has not benefitted from your fine work.
    It seems to me that there is general agreement that CDFIs 
have played a constructive role in rebuilding poverty-stricken 
and transitional neighborhoods and have helped to bring 
economic opportunity to individuals living in markets 
considered to be underserved by the financial services 
industry. Providing access to credit and investment capital is 
a primary step toward creating and retaining jobs, and 
obviously, creating jobs is what is at the heart of our work at 
the moment in Congress.
    It also revitalizes neighborhoods, develops affordable 
housing, and supports small businesses. And certainly, our goal 
is for that to continue to the greatest extent possible.
    To you, Ms. Gambrell, given the historically large amounts 
of funds distributed by the CDFI Fund in 2009, and the speed of 
the disbursement, do you think that standards for awarding 
grants were in any way modified or lowered in 2009?
    Ms. Gambrell. Thank you for the question, Congressman.
    Mr. Lance. Certainly.
    Ms. Gambrell. No, I don't. In fact, we were very methodical 
and thorough in our review processes for the 2009 rounds. We 
have what is called a triple-blind review process where we get 
a number of outside reviewers with expertise in community 
economic development issues who come in and read our 
applications. That goes through several other iterations even 
before recommendations are made. That process did not change in 
this current round, in this last round that we had. We 
continued to be, again, very careful, very thoughtful about the 
process itself and clearly, I think, had not only staff in 
place but outside expertise as well to help us work through 
that process.
    Mr. Lance. And could you explain in a little greater detail 
how the triple-blind process works?
    Ms. Gambrell. Yes. We have three reviewers who are assigned 
to one application. Each of our applications gets three sets of 
eyes on it in the initial phase. Those applications then are 
reviewed to make sure that they adhere to the criteria as set 
forth with that particular program or initiative. The reviewers 
then make recommendations. Their recommendations are forwarded 
to a second panel that takes a look at their ranking of those 
CDFIs that have come in for funding. A determination is then 
made from that list. The recommendations then move forward to 
still another round of reviews before a team leader is actually 
able to take a look and look at the recommendations and make a 
final determination.
    I don't get involved in that process, and I think it is 
important for me to make sure that there is an understanding 
that this is an arms-length process, as it should be, a 
firewall between that process and those reviewers.
    But when the final recommendation does come to me, those 
reviewers have taken great care in making sure that there is 
institutional diversity, geographic diversity, and that the 
funds are going to those organizations that have provided 
extraordinary comprehensive business plans on how they plan to 
use the funding.
    Mr. Lance. Thank you.
    Mr. Barr, do you have any comments regarding that?
    Mr. Barr. I think Director Gambrell handled it very well. 
Thank you.
    Mr. Lance. Thank you. Would you--there will be a subsequent 
panel, and I think it is probably unfair to ask you about what 
we expect the testimony to be from the subsequent panel, but 
obviously, on our side of the aisle, we would like you to 
comment as that subsequent panel articulates its point of view.
    Thank you, Mr. Chairman. I yield back the balance of my 
time.
    The Chairman. The gentleman from Georgia.
    Mr. Scott. Thank you, Mr. Chairman.
    Let me just ask, for the record, how do you target the 
underserved communities? Is it by something like household 
income? What is that criteria?
    Ms. Gambrell. Congressman Scott, we have some very specific 
criteria. We start with the qualifying census tracts, of which 
there are about 25,000 tracts that qualify that are low income, 
where there is high unemployment, high poverty, and look at 
those, start with those census tracts. But in particular, what 
we are doing as part of our outreach is making sure that those 
CDFIs that are in those highly distressed areas are aware of 
our programs so that they can come to us for that funding. And 
if they qualify, and if there is funding available--we have a 
high demand, as you know, for our programs. But if that funding 
is available, then those are the organizations that receive the 
funding.
    Mr. Scott. Very good. Let me ask you this, because I think 
the real central issue that we have to grapple with here is 
your lack of access to capital, so let's talk about that for a 
moment. From what I understand, you have gotten about $100 
million through the stimulus, and the Administration is asking 
for $250 million for the appropriation. And then there is 
something called a New Markets Tax Credit. Could you--and that 
is it. Is that enough? Can you tell us if that is enough of 
access to capital to do what you are doing? And if not, we need 
to know here today what legislative fixes we need to do to give 
you the level of capital you need.
    Mr. Barr. Let me, if I could, Representative Scott, take a 
first cut at that.
    The Administration has requested funding for the New 
Markets Tax Credit of $5 billion in 2010 and 2011. We still 
haven't closed out the 2010 New Markets Tax Credit extension.
    Mr. Scott. But let me ask you something about that, 
because--can you explain what the New Markets Tax Credit is? 
And especially at a time when all these tax credits--and I 
don't know if New Markets is different, but these tax credits 
are losing their value because of the housing stop. Isn't that 
a problem? Could you explain what those are?
    Mr. Barr. Certainly, Representative Scott.
    So, the New Markets Tax Credit is a bipartisan initiative. 
It was put in place now about 10 years ago. And it is designed 
to bring new sources of private-sector capital for business 
development, for charter schools, for community development in 
low- and moderate-income rural and urban communities.
    And the way it works is community development entities 
apply to the CDFI Fund on a competitive basis to receive an 
allocation. And they then use that allocation to attract 
private-sector resources. The tax credit then goes to the 
investor, and the investor gets a tax credit equal to 39 
percent of their investment. It is patient capital investment 
over 7 years.
    So it is a tax credit that is allocated by the CDFI Fund on 
a competitive basis. And it is then used to build commercial 
real estate, to do small business, to do entrepreneurial 
efforts in low-income communities.
    It has had a more difficult time in the financial crisis. 
It is one of the reasons why we want to be sure that you can 
use New Markets Tax Credits to offset AMT liability, and that 
will expand the investor base.
    Mr. Scott. I see my yellow light coming on, so I don't want 
the chairman to gavel me before we get to the crux of my 
question, which is: Is that sufficient? Are these sources 
sufficient? And, if not, tell us what you need us to do.
    Mr. Barr. I think the first thing I would say is, let's get 
the AMT relief and get the $5 billion authority for 2010, let's 
get the $5 billion authority for 2011, let's get the CDFI Fund 
budget at $250 million. That would make a huge difference in 
low- and moderate-income communities around the States. There 
are never enough resources, and people are hurting. But I think 
this is a very, very strong step.
    Mr. Scott. So those legislative fixes, again, would be the 
AMT relief, make sure we get the $250 million that he is asking 
for, and what was the other thing you needed?
    Mr. Barr. And then the 2 years, the $5 billion in New 
Markets allocation authority for 2010 and the same for 2011. 
That would make a big difference in low-income communities.
    Mr. Scott. Thank you, sir.
    Thank you, Mr. Chairman.
    The Chairman. The gentleman from Texas?
    Mr. Green. Thank you, Mr. Chairman.
    Again, I thank the witnesses for testifying.
    So that we can paint a proper picture, is it safe to assume 
that we have some low-income communities that are Anglo? I 
mention this only because--
    Mr. Barr. Of course.
    Mr. Green. --the perception seems to exist that this is 
another type of affirmative action program or something that is 
designed specifically for minority communities, which is not 
the case. This has benefited persons across--
    The Chairman. If the gentleman would yield, a casual 
observer looking at the attendance at the hearing might be 
inclined to think so.
    Mr. Green. Well, sometimes the person who is the voice of a 
program can project an image, too. And I just want to make sure 
that people understand that this has been a great program for 
people, regardless of ethnicity.
    And I really am curious as to why you were successful to 
the extent that you were when we had the downturn in the 
economy, when we had other banks, community banks and other 
banks, institutions that were not. Can you give me just some 
insight as to what helped you to weather the storm?
    Mr. Barr. Well, I would say, first of all, Representative 
Green, that a number of low-income communities were badly hit, 
including CDFIs. But many CDFIs had performance records that 
were better than their peers in similar circumstances. And I 
think that is because CDFIs are used to adversity, and they are 
used to finding creative ways of doing risk mitigation. They 
are used--
    Mr. Green. Let me intercede right there. Let's have an 
apples-to-apples comparison. Let's take a business loan. You 
make business loans, small business loans. And that is a great 
thing, by the way; I commend you for it. Why is it that your 
small business loans were successful in terms of repayment as 
opposed to small business loans that were made by some other 
institutions?
    Mr. Barr. I think that you are going to hear a little bit 
of that in the second panel from the CDFIs across the country 
that are making small business loans. But it is basically 
knowing their customer, building relationships, providing 
business advice and business assistance. It is knowing your 
community that you are serving. It is finding creative ways of 
sharing risks with others.
    And I think the strategies are proving effective even in 
this downturn, although, as I said, many low-income communities 
and many business loans are suffering in this downturn for 
CDFIs. It is just that, in many circumstances, they are able to 
weather a little bit better than their peers in similar 
circumstances.
    Ms. Gambrell. And, Congressman Green, if I may, sometimes 
it is as simple as the CDFI being physically located in that 
community. As Assistant Secretary Barr said, they know their 
customers; they see their customers day-in and day-out. And so 
this is a neighborhood that is used to seeing that CDFI, has 
access to the CDFI, knows the people who work there, and there 
has been a level of trust and comfort that has been established 
and nurtured over many years.
    Mr. Green. As we move forward, what would you recommend 
that we do here in Congress to assist you such that you can 
become fully capitalized, as is the case with banks? Banks 
would like to be fully capitalized. What would you recommend we 
do to help you become fully capitalized so that you can meet 
the demands of the market, not make loans arbitrarily and 
capriciously, but continue to make good, solid loans that 
people will repay and help small businesses to grow and 
flourish and help people to get jobs? What would we need to do 
to help you meet your demands?
    Ms. Gambrell. Well, I think the Assistant Secretary has 
talked a little bit about that. Certainly, from the New Markets 
Tax Credit side, there are parts of the program that will 
continue to be important for us to move the New Markets Tax 
Credit forward and to make sure we have a robust program there. 
Clearly, even from our financial assistance and technical 
assistance grants--
    Mr. Green. I am more concerned about the small business 
loans. The New Markets, I am familiar with, and that deals with 
areas, generally speaking. But small business loans?
    Ms. Gambrell. Yes. And so, from our financial assistance 
and technical assistance grants, those grants, in fact, have 
been used to continue to spur small businesses and to help with 
small business investments. I think that, again, to continue to 
see the expansion and growth of that program is going to be 
important to those CDFIs that are supporting those small 
businesses.
    We are also looking at ways on the New Markets Tax Credit 
side, as well, to look at ways in which the tax credits can 
also be used to further support small--
    Mr. Green. My time has expired. I yield back. Thank you, 
Mr. Chairman.
    The Chairman. The gentleman from Missouri?
    Mr. Cleaver. Thank you, Mr. Chairman.
    Thank you, Mr. Barr.
    And, Ms. Gambrell, I thank you for being with us last 
Wednesday, the CBC.
    Mr. Barr, when loans are made and Treasury transmits those 
loans to the regulators, how do we know that they know that 
these are high-risk loans? And is there any way in which 
regulators can take that under consideration when they are 
dealing with the borrowers?
    Mr. Barr. I think that we operate, obviously, a step 
removed in the process, in the sense that community development 
credit unions, banks, and thrifts are directly making the 
loans. The funds from the Treasury are going to support their 
making those loans.
    We have had an ongoing process with the bank regulators to 
make sure that they are aware that CDFIs are CDFIs. There is, I 
think, enhanced information sharing that Director Gambrell has 
put in place with the bank regulators to ensure that there is a 
timely and appropriate sharing of information consistent with 
supervisory responsibilities and confidentiality that helps 
that information process.
    Mr. Cleaver. Good. Okay, thank you. But what I am wondering 
is whether or not Treasury or Ms. Gambrell's operation not only 
passes the money through, but if the regulators are going to 
act as they would if--I almost said General Motors, but that a 
healthy corporation is borrowing the money.
    I am not suggesting that, as some folks always suggest, 
that we are telling people to tell the regulators to turn their 
heads or have a blind spot for these. But these are risky 
loans; we know that from the very beginning. And I am 
interested in how that plays out with the borrowers.
    Mr. Barr. There is obviously a separation between the 
independent regulator role and the role of Treasury and the 
CDFI funds--
    Mr. Cleaver. I understand.
    Mr. Barr. --so we have been trying to make them aware of 
the basic sets of situations. They have to make independent 
judgments with respect to institutions or loans.
    Mr. Cleaver. But they tell us they are afraid even right 
now. When we bring in the banks, they say they are going to 
make the loans, but the regulators are telling them that they 
have to watch this and watch that, and so loans are not getting 
out.
    So if we are doing that with healthy companies, my fear is 
that we don't get the optimum out of this if we are doing it 
like we do any other loan.
    Mr. Barr. I share your concern. I think that there is a 
natural tendency that you are seeing playing out in the 
regulatory community. With respect to the economic cycle, it is 
more severe than it usually is, but I hear that concern.
    Mr. Cleaver. What can we do about it?
    Mr. Barr. I do think that calling attention to the problem 
with the regulators is appropriate. The regulators have gotten 
together to issue guidance on commercial real estate and small 
businesses. My understanding is they are training their field 
staff in that new guidance, which is designed to promote 
consistency in the treatment of those loans.
    Mr. Cleaver. Okay. Let's shift gears. Bank Enterprise Award 
allocations--it has been zeroed out. This hurts, as I relate it 
to my district, in the community banks, banks that are 
operating in poor neighborhoods or in minority neighborhoods. 
We have a bank in Kansas City, Central Bank on Independence 
Avenue, and they said, this is something that is desperately 
needed. It has been zeroed out. Can you explain why?
    Mr. Barr. Certainly. As we were setting the CDFI Fund 
funding level, we had to make hard choices for this fiscal 
year. We wanted to explore ways of making sure that the Bank 
Enterprise Awards Program works effectively. I think for 
institutions that have used BEA in the past, it has some 
cumbersomeness to it that we would like to work our way 
through.
    Many of the community banks that are serving low-income 
communities can and do apply for CDFI core fund awards, which 
we have proposed to significantly increase under the $250 
million request.
    Mr. Cleaver. Thank you. My time has run out.
    The Chairman. The gentleman from Indiana?
    Mr. Carson. Thank you, Mr. Chairman.
    Recent research conducted by Federal Reserve staff 
regarding the work of a CDFI in my district indicates their 
programs for mortgage and credit counseling, homeownership 
training, loan programs, and post-purchase counseling are able 
to create borrowers who perform significantly than borrowers 
who do not complete the CDFI's programs. By ``better,'' I mean 
that after about 12 months their clients have delinquency rates 
approximately 10 percent lower than customers who have not gone 
through the program.
    The CDFI in my district does this while serving the 
targeted populations noted by the CDFI Fund in its financial 
assistance Notice of Funding Availability or NOFA. It is an 
ideal CDFI-type program. It is charitable, with private-sector 
funds, where they are combined with the significant positive 
leverage of bank capital to develop loan pools that finance 
long-term, stable, fixed-rate mortgages for underserved 
borrowers in neighborhoods. Yet, CDFIs in Indiana have only 
received approximately $5 million in direct financial 
assistance since 1996.
    My question is, what can applicants do to highlight the 
impact of their programs and make them more visible and 
recognized by the CDFI Fund during the evaluation process for 
financial assistance?
    Ms. Gambrell. Thank you, Congressman, for the question. It 
is a great question.
    What we find oftentimes, and what we continue to tell those 
applicants who come to us seeking funding and, quite honestly, 
where we still see some areas where organizations could do an 
even better job is really to talk about the impact that they 
believe that they will have upon communities. There are some 
that are very shy about really promoting the work that they do 
and talking in very specific terms about the impact that their 
comprehensive business plan might have.
    And so one of the things that I would encourage and one of 
the things we continue to encourage those organizations that 
come to us seeking funding is to make sure that they are being 
very specific and very explicit about the community impact, 
because that carries a tremendous amount of weight in the 
application process and for consideration itself.
    Mr. Carson. Thank you, Mr. Chairman. I yield back.
    The Chairman. The gentleman from North Carolina?
    Mr. Miller of North Carolina. Thank you, Mr. Chairman.
    My question is not specifically about CDFIs, but about low-
income communities generally, and specifically, the foreclosure 
problem and the problem of underwater borrowers. And, 
certainly, there has been a great disappointment in the failure 
of the industry of mortgage holders to modify mortgages in a 
way that makes it possible for those in the mortgages, for 
homeowners, to have underwater borrowers, to give them some 
equity to protect, to make it worth protecting. And, without 
that, even a modified mortgage payment is just expensive rent.
    Obviously, the foreclosure problem continues, and there are 
many who can't seem to get the mortgage holders to foreclose so 
they could get on with things, at least take the loss and move 
on.
    One of the problems that we continue to hear with voluntary 
modifications is the problem of second liens, principally 
second mortgages rather than home equity lines of credit. And 
there seems to be an obvious conflict in the interest of the 
first lien holders and the second lien holders.
    But apparently, two-thirds of all servicing is controlled 
by the four biggest banks, which also hold about half of all 
the second liens, between $400 billion and $450 billion in 
second liens, which seems to be an obvious conflict of 
interest, particularly if the second liens are a large 
unrecognized loss for those institutions, which it appears 
almost certain that they must be.
    Is the Administration, is the Department of the Treasury 
pursuing any remedy for that conflict of interest? Have you 
examined whether there is any existing law, State or Federal, 
statutory, common law, regulation, anything, that could address 
that obvious conflict of interest? And, if not, are you 
considering pursuing some kind of remedy that would prohibit a 
servicer from also holding second mortgages?
    Mr. Barr. This is obviously a thorny issue. It has 
bedeviled mortgage modification efforts for, really, since the 
beginning of the crisis. I think you are right to focus on the 
problem of second liens. I know Chairman Frank is also quite 
focused on that problem. I believe the committee is going to be 
having a hearing focused particularly on the issue of second 
liens.
    I know that we would like to see more action by the banks 
in this area. I think that the action so far has been 
disappointing.
    We have built into the President's modification plan a 
program to extinguish second liens automatically when a first 
lien is modified. We have been encouraging the banks to sign 
up. We have one of the big four signed up thus far. We are 
hopeful we will get the others in, but they are not in yet.
    When that program--once we are able to get those big 
institutions in, then when a first lien is modified, the second 
lien would automatically be brought into the modification 
program and either extinguish or modify down along with the 
first lien.
    We are seeing some principal reduction in the modification 
program, but not as much as we would like. This will help that. 
Borrowers who come into the program, we are finding that more 
than two-thirds of them are continuing to pay, which is much 
better than prior modification programs. That is encouraging. 
But we need to do more.
    Mr. Miller of North Carolina. Well, certainly, there has 
been a lot of concern that it will not be long before there 
will be more and more homeowners walking away. Yes, a 
surprisingly large number of homeowners are still paying, and I 
worry about, kind of, the loosening of the bonds of what is 
considered ethical conduct, of just deciding you are going to 
walk away. But, at some point, don't you think that there will 
be a significant problem with borrowers, with homeowners simply 
not paying, walking away, renouncing their debt, particularly 
in nonrecourse States?
    Mr. Barr. Well, our judgment, Representative Miller, is 
that this is a critical issue, but we need to be careful or 
protective of taxpayer concerns. We need to be sure that we are 
helping responsible borrowers who want to stay in their homes. 
But if there is a borrower who wants to walk away from their 
home, I am not sure that is the moment that we want to step in. 
We want to focus on the responsible borrower who wants to stay 
in their home, who has suffered some problem.
    Mr. Miller of North Carolina. Yes. The only point I was 
making is I feel a sense of urgency--and not saying, well, two-
thirds are still paying--I feel a sense of urgency that will 
not remain the case. And we need to get ahead of the problem. 
Well, we are not going to get ahead of the problem, at this 
point, but begin to catch up with the problem.
    Fundamentally, do you see that as a conflict of interest, 
to be a servicer for first mortgages while holding a second 
mortgage?
    Mr. Barr. I do think that, in our financial services 
sector, there are a number of conflicts of interest that are 
built into the structure of securitization trust and the 
mortgage financing system. It is one of the reasons why we so 
strongly wanted to pass financial reform, why we are pushing 
really hard to get it done this year, because I think we need 
to set uniform national standards that will improve that, going 
forward.
    We have a problem that is outstanding; we have to figure 
out a creative solution to get there. And that is why we have 
been looking in the modification effort to do it.
    Mr. Miller of North Carolina. Yes, I know that there are a 
lot of conflicts of interest. Is that one? Do you think that is 
one, to service the first liens while holding a second lien?
    Mr. Barr. I think that, in some circumstances, there is a 
misalignment of incentives between the first and the second 
lien. That is one of the examples of that. We have been trying 
to correct for that with our second lien modification program. 
I agree with you, it needs more work. I am encouraged that the 
committee is interested in looking at it together with us.
    Mr. Miller of North Carolina. I can't tell what the lights 
mean now.
    The Chairman. The red means--
    Mr. Miller of North Carolina. Well, yes, but I can't--okay. 
They have been changed. I see that I have no time to yield 
back.
    The Chairman. Your time has expired. I am sorry.
    The gentleman from Alabama asked unanimous consent for a 
couple more questions. Without objection, the gentleman from 
Alabama.
    Mr. Bachus. Thank you, Mr. Chairman.
    Mr. Barr, Mr. Green was asking you about the performance of 
the loans earlier. And it called to question--I know the 
testimony of one of the witnesses on the second panel is that 
CDFI banks are significantly underperforming peer banks. He 
says CDFI banks reported a median net loan charge-off rate of 
1.11 and a median noncurrent loan ratio of 3.82. By contrast, a 
peer group for traditional banks--and those are banks with less 
than $2 billion in total assets--reported a net loan charge-off 
rate of .42 and a noncurrent loan rate of 1.71. That would be 
about a--that would mean that the peer group was actually 
having charge-off of about one-third of what the CDFI banks 
were.
    Now, I don't know what that--whether we are talking about 
low-income communities. Are you familiar with the testimony?
    Mr. Barr. I have not read the particular statistic that you 
just cited to me. But I think there is a question of making 
sure we have apples-to-apples. So, in my response to Mr. Green, 
I was focused on trying to think about a traditional bank 
making a loan in the same circumstances as a CDFI bank and 
suggesting the reasons why a CDFI bank may be more successful 
in doing that.
    I don't want to suggest that this is easy to do or that 
low-income communities aren't hurting. They are. And businesses 
in them are hurting more than generally in the country.
    Mr. Bachus. Were you saying they are more successful or 
that they may be or if they are?
    Mr. Barr. I was saying if they are serving a similar 
borrower in the circumstances, these are the reasons why they 
might be so. But I certainly have not looked at and examined 
the statistics that you just described.
    Mr. Bachus. Okay, so we really don't have those numbers, or 
do we know?
    Mr. Barr. I don't have the numbers that you just described.
    Mr. Bachus. Yes, and I would just say this as a follow-up: 
Maybe if there are some numbers available or if the second 
panel, you get the testimony of the witness who says that, if 
you would kind of take a look at it and maybe just respond in 
writing, or Ms. Gambrell.
    Mr. Barr. We would be happy to come back to you on that. 
And, in addition, there have been some studies of the CDFI 
field and where they are successful and where they are not, and 
we would be happy to provide that.
    Mr. Bachus. Right. That would be helpful. I appreciate 
that.
    The Chairman. This panel is excused, and the next panel 
will come forward.
    We will begin with the Enterprise Corporation of the Delta.

   STATEMENT OF WILLIAM BYNUM, PRESIDENT AND CHIEF EXECUTIVE 
          OFFICER, ENTERPRISE CORPORATION OF THE DELTA

    Mr. Bynum. Thank you, Mr. Chairman, Ranking Member Bachus, 
and members of the committee. Good afternoon. Thank you so much 
for convening this important hearing. And thank you for 
inviting me to testify.
    As you said, my name is Bill Bynum, and I am the CEO of the 
Enterprise Corporation of the Delta and its affiliate, Hope 
Community Credit Union, a CDFI. Since we were established in 
1994, we have generated over $1.4 billion in financing and 
assisted over 71,000 individuals in Arkansas, Louisiana, 
Tennessee, and Mississippi. We work in a region that 
encompasses the Mississippi Delta, the Gulf Coast regions that 
have been devastated by Hurricanes Katrina and Rita, and what 
is arguably perhaps the most historically distressed region in 
our country.
    While my comments today will be from my experience as the 
CEO of ECD/HOPE, I also serve as the chairman of the Community 
Development Advisory Board, which is charged with providing 
counsel to Director Gambrell regarding policies of the CDFI 
Fund.
    The advisory board, in October 2008, in the midst of this 
financial crisis, stepped up to initiate a response to the 
detrimental impact that this crisis was having on the industry 
and the communities it served. We gathered extensive input from 
the field, from trade associations, foundations, funders, and 
presented a series of recommendations to Director Gambrell that 
focused on increasing CDFI capacity through legislative and 
statutory actions, on improving the efficiency of the Fund's 
certification, award, and reporting process, and on ensuring 
that CDFI programs are being utilized in areas of highest 
economic distress.
    I am pleased that several of the recommendations have been 
implemented, providing a financial lifeline to thousands of 
people struggling in distressed communities across the country. 
It is also significant that we still have work to do in some of 
those recommendations.
    Director Gambrell and her staff ought to be commended for 
expediting funding so effectively over the past year, enabling 
financial assistance in communities faster than ever before. 
However, in the fourth quarter, 56 percent of CDFIs reported 
increased demand for financing due to the deterioration of 
secondary markets, tightening of credit, and smaller State 
budgets. And CDFIs across the country report capital 
constraints that limit them from responding to the increased 
demand that we are seeing.
    Despite more Federal funding for CDFIs relative to prior 
years, more than 200 high-scoring CDFI applications to the 
fund, totalling $328 million, could not be funded in the last 
fiscal year. Unfortunately, the impact of the shortfall is 
often greatest in areas that suffer historically from high 
levels of poverty and a lack of access to capital, such as the 
region in which I work.
    The mid-South region of Arkansas, Louisiana, and 
Mississippi has the highest poverty rates in the Nation. 
Mississippi and Arkansas have the lowest and third-lowest 
median family incomes in the country. We have a high percentage 
of unbanked residents compared to other States. High-cost 
mortgages are dominant in our region. Thirty-seven percent of 
Mississippi's population is African American, the highest 
percentage in the Nation. And despite the higher concentration 
of minority residents, we have the lowest rates of minority 
business ownership. That is the primary reason the CDFIs are so 
critical.
    We made several recommendations that we hope that the Fund 
and this committee will consider. The first is to give higher 
priority of CDFI funding in areas of high economic distress. 
The advisory board recommended that the Fund take steps to 
ensure the programs are being utilized in areas of highest 
economic distress. And we recommend that Congress consider 
emphasizing this, perhaps in a way similar to what was done 
after Hurricane Katrina, by focusing specific resources on 
those areas that have highest job loss, highest percentages of 
African Americans, and highest economic distress.
    We also recommended that TARP funds be carved out for 
CDFIs. We appreciate the allocation of TARP funds to depository 
CDFIs. As Secretary Barr mentioned, loan funds were not 
included in this. We have made several recommendations to 
Treasury that we think provide funds to loan funds in a 
responsible manner. And we encourage the Treasury Department 
and Congress to work with the field to implement these 
recommendations.
    Lastly, I would like to encourage that CDFIs get greater 
access to Federal resources across-the-board. CDFIs are unique 
in providing services to distressed communities, and it stands 
to reason that we should have access to Federal resources on a 
par with traditional financial institutions, such as SBA 
programs, USDA programs, HUD, and others. And because the CDFI 
advisory board includes representatives of all of these 
agencies, we would be ready to play a role in facilitating this 
collaboration.
    Thank you.
    [The prepared statement of Mr. Bynum can be found on page 
63 of the appendix.]
    Mr. Watt. [presiding] Thank you for your testimony.
    Mr. Moncrief, you are recognized for 5 minutes.

  STATEMENT OF L. RAY MONCRIEF, EXECUTIVE VICE PRESIDENT AND 
    CHIEF OPERATING OFFICER, KENTUCKY HIGHLANDS INVESTMENT 
                          CORPORATION

    Mr. Moncrief. Thank you, Mr. Chairman, and Ranking Member 
Bachus. Thank you for the privilege and the opportunity to 
testify on the CDFIs and the work that we are doing at Kentucky 
Highlands Investment Corporation in Kentucky.
    I, too, am a member of the CDFI Advisory Board, and I 
perform as the chief operating officer of Kentucky Highlands. I 
have been a practitioner in the area of community economic 
development for 32 years. And I do the work that I do in 
Appalachia, which is a severely rural, distressed area of our 
Nation.
    I want to communicate that CDFIs do fill a vital niche in 
our financial services for areas that are highly distressed and 
are low-income.
    Kentucky Highlands has been around since 1968 and provides 
a whole series of equity products and debt products to 
businesses that are looking to start, looking to expand, and 
looking to stabilize. Just for an example, Kentucky Highlands 
has invested more than $165 million in more than 500 businesses 
since its inception and deals with unemployment rates somewhere 
in the 15 percent range.
    The Kentucky Highlands service area, indeed, is rural and 
is frequently overlooked by traditional capital sources. We 
know that there are specific unique needs in our service area 
that we target with the CDFI Fund, and we have been able to 
greatly improve the quality of life of many people.
    An example: A company named Patriot Industries in a very 
severe low-income area 12 years ago began with 15 employees. We 
invested equity and provided various forms of debt and 
operational assistance to that company. Today, they closed 
their fiscal year 12/31/09 with 545 employees and was very 
profitable and have plugged $33 million of payroll into that 
community over the last several years.
    One of the questions that Congressman Scott asked of the 
earlier panel was what would happen if we weren't there? An 
example is that in London, Kentucky, there was a small business 
that did metal stampings and did powder coating and those sorts 
of things. When the financial crisis hit, the regional banks 
were looking at those companies that were on the bubble, and 
they asked this particular company to find its financing 
elsewhere. They came to us, and we syndicated a $2.5 million 
revolving line of credit for this company, a company that does 
about $40 million in revenue and have preserved 220 jobs.
    We, in our practice, have found that saving jobs in low-
income communities is far more robust than trying to create 
jobs in low-income communities. The demand for our services has 
spiked as a result of this financial crisis that we are in.
    One of the things that I would like to suggest to the 
committee is that the American Recovery and Reinvestment Act 
superseded or laid to the side the need to have matching funds 
when a CDFI was seeking a financial assistance grant. I would 
urge the continuous, at least through this existing fiscal year 
or the coming fiscal year, of the waiver of that match. Finding 
matching funds for an FA grant from the CDFI Fund is almost 
nonexistent.
    One of the things that I want to leave with the committee 
is that the CDFI community is a very robust network of highly 
committed, on-the-ground financial executives and professionals 
who know how to invest in low-income communities because we 
live in the low-income communities.
    One of the things that we do is provide a high degree of 
technical assistance to these businesses. And, as such, we have 
found that our underwriting, coupled with the technical 
assistance and living with these businesses, has resulted in 
high performance on the part of these loans.
    I want to thank the committee for the privilege to testify 
today, and thank you very much.
    [The prepared statement of Mr. Moncrief can be found on 
page 108 of the appendix.]
    Mr. Watt. Thank you so much for your testimony.
    Ms. Barrera, you are recognized for 5 minutes.

   STATEMENT OF JANIE BARRERA, PRESIDENT AND CHIEF EXECUTIVE 
                OFFICER, ACCION TEXAS-LOUISIANA

    Ms. Barrera. Thank you very much for the opportunity to 
speak today.
    ACCION Texas is the Nation's largest nonprofit micro 
lender. We began our history in 1994, and we have a record of 
sustained growth in size and footprint. Our mission as a 
nonprofit organization is to provide credit to small businesses 
that do not have access to credit from traditional sources.
    Over our history, we have been significant beneficiaries of 
the CDFI Fund. Since 1996, the Fund has awarded ACCION Texas 
$6.8 million in a combination of grants and loans for loan 
capital, all of which were deployed, on the average, within 24 
months of receipt. These funds have been essential in our 
expansion beyond our initial office is San Antonio to 14 
offices across the States of Texas and Louisiana.
    Eighty-two percent of our small-business owners are 
minorities, and 49 percent are women. We have disbursed over 
10,000 loans, totaling $94 million, to over 7,000 small 
businesses in our market. The average loan size is $14,000, and 
the average credit score of one of our customers is 575. We 
have a historical loss rate of 6 percent. Funds disbursed 
directly resulted in the creation of 2,200 jobs and the 
retention of 4,000 more.
    The importance of the CDFI Fund in maintaining this level 
of performance becomes even clearer in challenging economic 
times, when funding from other sources is often reduced or 
curtailed. The recent economic downturn has had a substantial 
impact on our activities, both positive and negative. Over the 
last 40 months, we have disbursed an average of $1 million 
every month. New loans originated increased in 2009 to a record 
$16 million with overall portfolio growth of 20 percent, to $26 
million.
    We have used our portfolio repayment experience, along with 
appropriate credit underwriting standards, to develop a 
proprietary underwriting platform to evaluate loan requests. We 
use this platform to support the CDFI industry. We underwrite 
and perform the backroom services for 13 other CDFIs throughout 
the country.
    Despite the consistent 20 percent annual growth in our 
portfolio, the ever-increasing demand for our services and the 
associated costs continue to provide challenges from a 
liquidity perspective. We continue to maintain a heavy reliance 
on fund raising to support our growth. A current example is our 
pending $2 million CDFI Fund request to provide loan capital 
for continued expansion in Louisiana. We opened up our first 
Louisiana office in New Orleans in April of 2009.
    At the State level, I would like to give an example of a 
State program that is no longer active because the fund sits 
empty. It is called the Texas Capital Access Program, TCAP. 
TCAP was established during the 1997 legislative session. The 
State fund helps banks and CDFIs establish loan loss reserve 
funds for increased-risk loans. The program is available to 
businesses of up to 500 employees. The TCAP fund helped us 
disburse 830 loans, totaling over $5 million, costing the State 
$93 per job. In 2010, when there were more people needing 
access to capital, ACCION Texas-Louisiana and other CDFIs are 
positioned to provide funding to those waiting for loans if the 
dollars are available to lend. Again, this fund is inactive 
because its fund sits empty.
    It is our hope that recent Federal efforts to increase the 
flow of funds to small businesses, such as loan guarantees or 
other stimuli, are extended to CDFI intermediaries like ACCION 
Texas-Louisiana. While recent efforts to encourage community 
banks to provide more loan capital to small businesses are 
certainly welcome, the importance of CDFI intermediaries as an 
alternative growing funding source warrant the inclusion in 
these programs. As noted earlier, we get the money out on the 
street.
    Additionally, given the urgency of demand and the desire to 
more quickly stimulate an economic recovery based in part on 
small business growth, I suggest revisiting the CDFI Fund 
application and evaluation process to identify opportunities to 
streamline and quicken the process, especially for prior 
beneficiaries with a proven successful track record with CDFIs.
    Our requested action steps to improve the CDFI funding 
process are to: extend a higher level of funds for the program; 
adjust the funding schedule to allow for more frequent 
distribution than annually; modify fund restrictions and caps 
to better accommodate proven fund performers; and establish a 
loan guarantee fund for CDFI intermediaries using State 
programs like the ACCION Texas Capital Access Program.
    It is my hope that this commentary will prove to be 
beneficial as you evaluate the current state and the potential 
revisions of the CDFI Fund. We are very grateful to have had 
the opportunity to speak today. Thank you.
    [The prepared statement of Ms. Barrera can be found on page 
49 of the appendix.]
    The Chairman. And I now ask, if there is no objection, to 
insert into the record the National Community Investment Fund 
study, the CDFI Banking Sector 2008 Annual Financial and Social 
Performance. Without objection, we will make that a part of the 
record.
    Now, we will now hear from Ms. Dorothy Bridges, president 
and chief executive officer of City First Bank of DC.

  STATEMENT OF DOROTHY BRIDGES, PRESIDENT AND CHIEF EXECUTIVE 
                 OFFICER, CITY FIRST BANK OF DC

    Ms. Bridges. Good afternoon, Chairman Frank, Ranking Member 
Bachus, and members of the committee. Thank you very much for 
inviting me to discuss the important work of CDFI in the 
context of this current economic crisis.
    As the chairman mentioned, I am Dorothy Bridges, CEO and 
president of City First Bank of DC. We are a regulated 
commercial bank and a community development bank. We are also a 
certified CDFI that serves the Washington, DC, metro area with 
a focus on low-income communities.
    In 2009, there were 62 certified CDFI banks with over $17 
billion in aggregate total assets and a median size of $163 
million. We account for less than 10 percent of the total 
number of CDFIs but represent more than 50 percent of the total 
assets of that sector. We target at least 60 percent of our 
business activity to low- and moderate-income, LMI, 
communities. As depositories, we use our equity capital to 
raise 8 times the amount in deposits to support the direct 
lending that we do.
    Our lending has had a ripple effect far beyond our direct 
customers because it sparks further revitalization. As an 
example, Columbia Heights is a DC neighborhood that was 
abandoned by commercial and retail businesses for 40 years. In 
2005, City First Bank invested $14.5 million in New Markets Tax 
Credit allocation to restore the Tivoli Theatre, which was an 
anchor for a mixed-use project that included a grocery store, 
housing, commercial, and retail space. The project created jobs 
for local residents, restored the property to the tax base, and 
sparked a new round of commercial and residential investment in 
that neighborhood.
    We believe our communities deserve the same economic 
opportunities as the mainstream communities and that credit is 
essential for recovery. Due to the past disinvestment, our 
communities are more challenging and more expensive to serve 
than others. Products are often customized, loan sizes are 
smaller, and higher loan loss reserves are often needed. Harsh 
economic times like this only makes this worse.
    While predators have fled the neighborhoods, we remain 
ready to serve the neighborhoods. Loan demand is strong, but 
the extended recession has left some CDFI banks unable to fully 
respond to demand due to the portfolio and regulatory 
challenges.
    Liquidity is also a challenge for us, as regulators 
classify reciprocal CDAR deposits as brokered despite strong 
evidence that they are a stable source of CDFI funding.
    Finally, encouragement by regulators to maintain higher 
capital ratios raises the bar for us. For our communities, this 
results in a tightening of credit and a suppression of economic 
activities.
    City First Bank has had a profitable year in 2009, but we 
are still adversely impacted, as the downturn has devastated 
our neighborhoods and threatens the gains we have worked for 
over the past decade. The CDFI Fund is an invaluable partner to 
us. Without it, our bank would probably not exist.
    Beginning with an initial CDFI investment in 2000, we have 
participated in the Bank Enterprise Award, CDFI Financial 
Assistance, and New Markets Tax Credit programs. We have grown 
from a zero base to $156 million in total assets and have 
averaged over the last 2 years $30 million in lending, mostly 
to small businesses.
    My recommendations to the committee to help support the 
important work of CDFI banks are: one, support the Community 
Development Financial Institution Coalition request for $300 
million in Fiscal Year 2011, including the restoration of 
funding for the Bank Enterprise Award program; two, provide 
oversight to ensure that the community development capital 
initiative program maximizes the participation by insured CDFIs 
and provides capital in an expeditious manner; three, help to 
support our efforts to count CDARS reciprocal deposits as core 
deposits; and four, recognize that the CDFI Fund's programs are 
sound, well-designed, effectively implemented, and highly 
impactful in needed communities as you consider 
reauthorization.
    Thank you very much for letting me share CF Bank's story. 
We look forward to working with the committee to ensure lower-
income communities are not left behind in this recovery.
    [The prepared statement of Ms. Bridges can be found on page 
52 of the appendix.]
    The Chairman. Thank you.
    And next, we will hear from Ms. Tanya Fiddler, who is the 
vice president for programs and operations for the First 
Nations Oweesta Corporation, Cheyenne River Reservation.

  STATEMENT OF TANYA FIDDLER, VICE PRESIDENT OF PROGRAMS AND 
 OPERATIONS, FIRST NATIONS OWEESTA CORPORATION, CHEYENNE RIVER 
                          RESERVATION

    Ms. Fiddler. Thank you, Chairman.
    ``Mitakuyapi, Tuktel He Najin Oyate Wiyankapi Win Lakota 
emaciyapi na Tanya Fiddler English emaciyapi, k'sto.''
    To all of you, my Lakota name is, ``She Stands Where the 
People Watch Her Woman,'' and my English name is Tanya Fiddler. 
I am an enrolled member of the Cheyenne River Sioux Tribe. And 
I have run a nationally recognized Native CDFI in Eagle Butte, 
South Dakota, for the past 10 years. As the chairman said, I 
have recently taken a position as vice president of programs 
and operations at First Nations Oweesta Corporation in January, 
and I am the co-chair of the newly formed Native CDFI Network.
    Let me begin by saying ``Pilamaya ye,'' thank you for the 
opportunity to appear before you on behalf of Oweesta and our 
Native communities throughout the United States, including 
Alaska Native and Native Hawaiian communities, some of the most 
impoverished communities in our country.
    I have come here today to be a witness to the unique role 
that CDFIs play in Native communities and have included their 
innovations and successes in my written testimony, so I hope 
that you are able to see those. I have also included 
recommendations to continue the momentum of the Native CDFI 
industry in alleviating poverty and our double-digit 
unemployment rates, recommendations like giving the Native 
initiatives a permanent place in the Fund's authorizing 
statute.
    Oweesta is a certified national Native CDFI intermediary 
that provides training, technical assistance, and investments 
to help Native communities across the country establish 
sustainable, vibrant, and healthy economies. Self-sufficiency, 
wise resource management, and entrepreneurship are all 
traditional Native values. And over the last decade, Oweesta 
has been leading the movement to renew these values in modern 
Native communities.
    The movement we are part of is greatly enhanced by the 
support Native communities have been receiving and will 
continue to receive from the CDFI Fund's Native Initiatives 
Program, and I have a little history on it. In 1999, the CDFI 
conducted the Native American lending study that examined 
access to capital and financial services in Native communities 
and identified 17 barriers to Native economic development. The 
CDFI Fund responded by launching the Native Initiatives program 
in 2002--this, in and of itself, an innovation and success that 
has spurred our work at Oweesta to develop national CDFIs and 
provide critical funding for training and lending to Native 
CDFIs on the local level.
    To date, the CDFI Fund has made 220 awards totaling $46 
million to Native CDFIs, including Oweesta, serving over 100 
impoverished Native communities. At the time the Native 
initiative was launched, there were nine certified Native 
CDFIs. Today, I have just added two, there are 57 Native CDFIs. 
So the growth in the industry has been incredible.
    Why is the CDFI Fund's role so important? It is because 
Native CDFIs are the leading source of capital for small 
business, homeownership, and asset building in reservation 
communities that historically have not been served by 
mainstream financial institutions, making them great targets 
for predatory lenders that have been happy to fill that void.
    One of the areas where Oweesta has done extensive work is 
the Cheyenne River Indian Reservation. The reservation 
encompasses Dewey and Ziebach counties, two of the poorest 
counties in America. In 2000, 80 percent of the Cheyenne River 
population was Native American, but less than 1 percent of the 
businesses were Native-owned. This disparity provided immense 
opportunity for the start-up of Four Bands Community Fund, a 
Native CDFI that provides entrepreneurship and asset-building 
services to the reservation.
    I am here to say that communities on my reservation, like 
many other Native communities with the Native CDFI, are 
experiencing real changes. We are replacing poverty with 
entrepreneurship and financial literacy skills. Having recently 
been the executive director of Four Bands, I would like to 
share a story to demonstrate the effect of the CDFI's programs 
and what they are doing to help play a role in getting people 
on the Cheyenne River Reservation out of poverty.
    Four Bands began lending in 2002, and one of our first 
$1,000 micro loans went to an unemployed tribal member who 
completed our business training class and wanted to start a 
plumbing and heating business. He needed to put tires on his 
truck so he could travel to jobs. We made the loan, and he was 
on his way.
    In 2006, D&D Plumbing and Heating was able to access a 
$200,000 loan from an authorized lender with an SBA guarantee--
which is a rarity, to see SBA guarantees in Indian country, as 
well--in order to construct a building and a machine shop. He 
was employing five to seven tribal members and was partnering 
with Four Bands to provide some youth entrepreneurship 
internship opportunities in our community, as well.
    Early in 2009, the effects of the recession started to hit 
Cheyenne River, and D&D came back, asking for help. We were 
able to take the loan on, and help them preserve their 
business--I see I am out of time.
    The Chairman. Don't worry about the time.
    Ms. Fiddler. Well, then I will finish my story.
    The Chairman. Yes, keep going.
    Ms. Fiddler. He contacted us, asking for assistance. We 
took the loan back, brought it in-house, helping to preserve 
their business credit. We provided financial and marketing 
assistance to his business in order to help him get through 
this economic downturn.
    To date, Four Bands has trained nearly 2,000 people in 
personal finance and entrepreneurship skills. Many of them are 
youth. We have distributed $1.5 million to micro, small 
business, and credit building loans; committed $230,000 in 
match savings for individual development accounts for asset 
building; have supported over 70 new businesses, new and 
existing businesses, creating 150 jobs; and have rehabilitated 
30 store fronts. We have a water shortage, and we are not able 
to have new construction. We have also worked with the Cheyenne 
River Sioux Tribal Government to make policy improvements that 
support private business and personal financial skills among 
our members.
    I conclude by saying that the Native communities have come 
a long way. Ninety-five percent of our services serve exactly 
the low-income community.
    On behalf of our communities, I say, ``Wopila Tanka,'' with 
great thanks, to the Fund for all it has accomplished and to 
the current Administration and Congress who have supported 
Native economic development by securing the Native Initiatives 
as a line item in the 2010 and 2011 budget.
    And, again, thank you.
    [The prepared statement of Ms. Fiddler can be found on page 
73 of the appendix.]
    The Chairman. And, finally, Judy Kennedy, who is the 
president and chief executive officer of the National 
Association of Affordable Housing Lenders.
    Ms. Kennedy?

 STATEMENT OF JUDITH A. KENNEDY, PRESIDENT AND CHIEF EXECUTIVE 
  OFFICER, NATIONAL ASSOCIATION OF AFFORDABLE HOUSING LENDERS 
                            (NAAHL)

    Ms. Kennedy. It is great to be here talking about such 
successful investment.
    The Nation's leading mission-driven nonprofit lenders for 
affordable housing--two of my favorites happen to be in 
Massachusetts and Alabama--are here today to talk about how 
much more we could do to help sustain our Nation's economic 
recovery with more construction private-sector jobs if we only 
had more capital and liquidity.
    NAAHL's mission is to increase the flow of private capital 
lending and investing in low- and moderate-income persons and 
areas. We represent 100 organizations in moving private capital 
to those in need. This ``who's who'' of private-sector lenders 
and investors includes major banks, blue-chip nonprofit 
lenders, CDFIs, and others in the vanguard of affordable 
housing. Seventy percent of NAAHL's nonprofit lender members 
are CDFIs, and the rest are high-performing mission-driven 
organizations.
    Main Street loan demand has dramatically increased for 
financing affordable multi-family rental housing over the past 
2 years and for the small businesses, the Ma and Pa landlords 
that drive the economies of our local communities. But 
successful mission-driven nonprofit lenders are struggling more 
than ever with the need to find capital and liquidity to meet 
the demand both in urban and rural markets to close the 
existing gap.
    The bottom line is that experienced mission-driven 
nonprofit lenders seem to be the victims of their own success. 
They have few troubled assets. Most have never had a loss on a 
loan. If they have, they count their losses in basis points. So 
the crisis has obscured their unique contributions and their 
unique ability to help turn this economy around.
    Our nonprofit lenders finance affordable housing that 
families, seniors, and the disabled are proud to call home. And 
they also preserve expiring portfolios of Section 8 project-
based contracts in places as diverse as Massachusetts, New 
York, Alabama, California, Illinois, Oregon, and the Carolinas.
    Recognizing these nonprofits' important mission and stellar 
track records, throughout the crisis, their bank investors have 
honored their traditional commitments to these loan funds. This 
private capital has enabled the lenders to continue to finance 
preservation and construction for Main Street and businesses in 
their States. But because the demand has so outstripped the 
supply, we have the following specific recommendations to 
increase lending on Main Street and financing for affordable 
multi-family rental housing--two things you could do today and 
two things that could take a little longer.
    Number one, expand the Treasury's 2 percent capital 
initiative to nonbank CDFIs. The Federal Housing Finance Agency 
has just completed an extensive rulemaking process that hopes 
to equate nonbank CDFIs with current standards for CDFIs, and I 
think that is a great place to start. The Emergency Economic 
and Stabilization Act was enacted to restore the flow of credit 
to small businesses with a primary purpose to promote jobs and 
economic growth. We think now is the time to utilize that 
authority.
    Number two, something else you could do today is to 
increase access to the capital markets for Main Street 
borrowers through the GSEs or other government programs. Fannie 
Mae and Freddie Mac continue to be AWOL in financing the 
landlords of small multi-family properties on Main Street. Our 
nonprofit lenders--again, the ones who have no losses or losses 
of under 1 percent--currently hold more than $1.5 billion in 
seasoned, performing, low-balance multi-family mortgages. 
Replenishing these loan funds would spur thousands of private-
sector jobs just in 2010.
    Two things that could take a little longer: Update the 
Treasury Department's CDFI Fund regulations for a variety of 
purposes. For example, in the Carolinas, the Community 
Investment Corporation of the Carolinas doesn't qualify for 
CDFI funding because their parent organization, the State 
Bankers Association, can't document that 60 percent of their 
mission is for low- and moderate-income people. But 100 percent 
of CICCAR's mission is for low- and moderate-income people, so 
we think you need to update the definition.
    You also need to update the 2003 regulation changes that 
caused almost all of NAAHL's CDFI members to no longer be 
eligible for funding. They are outdated. They reflect a Federal 
priority in 2003 that should not be governing 2010 and 2011 
decisions, so we urge that you do that soon.
    Finally, a national insurance program offering protection 
against the top loss on multi-family, affordable rental 
properties could go a long way in terms of expanding the pool 
of potential investors and replenishing the supply of funds to 
lend.
    In the State of New York, something called SONYMA, the 
State of New York Mortgage Agency, insures the top 20 percent 
loss on all qualifying multi-family mortgages. This has induced 
Freddie Mac, pension funds, and the Archbishop of Brooklyn to 
invest in these loans, which they say for 2008 were some of the 
best investments they had at 6 to 7 percent.
    What impact could each of NAAHL's 25 nonprofit lenders make 
if they had the means to finance just a hundred more affordable 
apartments in 2010? Based on what the Home Builders tell us 
about estimated 1-year impacts, if each of these 25 across the 
country just did a hundred units more, it would generate--it is 
amazing--$198 million in local income. It would generate 3,050 
jobs. It would generate $21 million more in revenue for the 
local governments.
    We think now is the time to expand the program to allow at 
least each of these 25 to create the jobs in the construction 
activity we know is critical to recovery. The main financial 
rescues of the past 18 months have eclipsed the strong 
performance of these lenders. We appreciate your strong 
interest in increasing loan availability and jobs on Main 
Street and look forward to supporting your efforts.
    [The prepared statement of Ms. Kennedy can be found on page 
98 of the appendix.]
    The Chairman. Ms. Kennedy, I will begin with you. And I 
did, as you heard, ask the Administration to look at those, and 
your specifics were among those I had in mind.
    With the exception of an insurance fund, it would seem to 
me you were talking about things that all could be done without 
legislation. Is that accurate?
    Ms. Kennedy. Yes. I am not sure about all of our CDFI Fund 
recommendations, but I believe most of them stem from--
    The Chairman. All right. If you would you boil that down 
and send a copy to us, and we will forward it, according to 
which could be done by regulation and which not.
    The last, an insurance fund, clearly would be legislative. 
And I would say to you at this point, we will put that one 
aside for now because we will be having hearings on the 23rd 
and we will begin a process that Members on both sides have 
been calling for to reorganize housing finance in America. And 
what you were talking about there clearly belongs in housing 
finance.
    And let me ask, when you talked about that insurance, is 
that for subsidized--well, obviously, it is a form of 
subsidized--is there an affordability limit there, is there a 
rent limit or an income limit on the projects that are eligible 
for that?
    Ms. Kennedy. Because it is New York, almost all the 
projects are subsidized. And there is an affordability--
    The Chairman. Well, in your proposal for the national fund, 
would there be a limit on the rents charged and the income of 
the eligible participants?
    Ms. Kennedy. Yes. The standard that we have used is the 
typical Section 8 standards. So, for example, in Chicago they 
can do preservation of affordable housing without subsidy, but 
they rent to--
    The Chairman. I didn't ask you about Chicago. I asked you 
what your proposal is.
    Ms. Kennedy. Yes, our proposal would be Section 8 eligible 
tenants--
    The Chairman. That if people were building--
    Ms. Kennedy. Under 80 percent of varying median income--
    The Chairman. So if they were building for people who were 
80 percent of median or below, they would be eligible for that 
insurance fund. It is just something I would say we would ask 
you to--you will resubmit that to us when we have a broader 
hearing.
    And on the others, there are obviously varying degrees of 
difficulty, but they did sound--you send us the list; we will 
look at it. You can also send it to Treasury, and we will at 
least get some responses.
    The gentleman from Alabama?
    Mr. Bachus. Thank you.
    Ms. Barrera, you know, the hill country of Texas used to 
have a high rate of poverty. Does it still? Does it still stand 
out demographically, or what is the situation?
    I am talking about 30 years ago. I was stationed at Fort 
Sam.
    Ms. Barrera. It is still, but that is probably a faster 
growing community now. And I would say it is the people in 
south Texas who are hurting the worst. They are the ones that 
are at high poverty ratios. Again, there are still the 
unincorporated areas, no zoning and so on. So that is really 
our--the border of Texas is really the highest.
    Mr. Bachus. I guess with the agriculture, it is not as 
important, so it obviously wasn't a great place to raise crops.
    Ms. Barrera. That is right.
    Mr. Bachus. Mr. Moncrief, I have part of Appalachia in my 
district. The poverty level there--and I know, Mr. Bynum, I 
know the Mississippi Delta is just a tremendously poor region, 
I guess Mississippi, Louisiana, and Arkansas. Appalachia is not 
to that extent, I guess, is it? But what is the situation 
there?
    Mr. Moncrief. Congressman, when you look at the Appalachian 
Mountains of eastern Kentucky, there are some of the counties 
that approach 30 percent poverty.
    So, the landscape is very, very drab. Just the geography 
doesn't lend itself to acres of flat ground, if you will, to 
build businesses. We, in eastern Kentucky, use the word 
``entrepreneurship'' as the salvation of people working in 
eastern Kentucky. When you look at the population of eastern 
Kentucky and Appalachia, and certainly Appalachia, Alabama, 
compare that to the Delta of Mississippi, Louisiana, Arkansas; 
we are looking at the same situation. We all face the same 
sorts of poverty levels and use exactly the same tools, which 
really is the reason why this program is so vital.
    Many times, we have an almost absence of access to capital. 
But for organizations like ours, many people don't want to move 
into rural parts of Louisiana, Mississippi, Arkansas, Kentucky, 
or Alabama to do the service delivery of financial tools that 
are necessary. So we are faced with stark poverty where we are.
    Mr. Bachus. Thank you.
    I know in Alabama we have--the parts of Birmingham that are 
the inner city that are--but there is that same hopelessness 
and lack of opportunity in many rural parts of our country. I 
know Geoff Davis, who was a member of this committee for years, 
was a very good advocate for that program. I think he realized 
what Mr. Green said, that it is no respecter of color. The Rosa 
Parks, the Alabama Multifamily Loan Consortium, can you tell me 
a little bit about that? Is it in Montgomery?
    Ms. Kennedy. I am not sure.
    Mr. Bachus. I would assume that it is.
    Ms. Kennedy. I think it is. Twelve years ago, the Housing 
Finance Agency of Alabama approached the Alabama Bankers 
Association and said, we need some entity to finance tax credit 
low-income housing in Alabama. So, much like the Carolinas, or 
New York, or Massachusetts, the State banking association 
worked with the State housing finance agency. So now, we have 
53 banks in Alabama that, every year, invest in affordable 
rental housing. They pool their money. They diversify their 
risk. The same thing is true in California.
    And in that process, they finance with long-term, fixed-
rate mortgages, all of the tax credit properties, all of which 
are eligible to under 60 percent of area median income. Rosa 
Parks is for seniors and disabled, the first affordable rental 
of that type in the State.
    Mr. Bachus. And those facilities, in appearance and 
everything else, they are very desirable.
    Ms. Kennedy. You wouldn't know it had any subsidy attached 
to it, and sometimes that is the goal. These are units people 
are proud to call home and which are often near their families.
    Mr. Bachus. Is that the one, what was the CDFI in Alabama 
you were--
    Ms. Kennedy. Unfortunately, our Alabama consortium is not a 
CDFI. Truth in labeling, the complexity of qualifying for that 
certification, and I am just going to be honest with you, 
somebody said it earlier; when you are surviving as a 
nonprofit, you sometimes can't afford to invest in other 
resources. I have no doubt that Alabama will apply for 
certification some day. But I think we need to streamline the 
application process first.
    Mr. Bachus. Okay. Thank you.
    Ms. Waters. [presiding] Thank you very much.
    Ms. Kennedy, according to your testimony, CDFI fund rules 
need to be updated, including the need to prioritize leveraging 
public subsidy with private capital to increase multifamily 
affordable rental housing projects. Can you describe in more 
detail the need for more leveraging and how this would help 
your members and low-income communities in general?
    Ms. Kennedy. Sure. In 2003, the prior Administration 
decided to prioritize single-family homeownership and 
investments in lending in certain areas. The challenge for 
nonprofit multifamily lenders has been that these reflect 
Federal priorities and not local priorities.
    So, again, back to Alabama, the lender doesn't decide where 
those properties go. The State Housing Financial Agency 
allocates Low Income Housing Tax Credits according to the 
State's own priorities. So if we were to go back to the pre-
2003 regulations, for example, that did reflect the ability to 
leverage and the application process, did reflect 
responsiveness to local needs; I think we are down to only two 
of our nonprofit lenders that can qualify for funding. We could 
expand the pool enormously.
    Ms. Waters. Thank you very much.
    Mr. Mel Watt?
    Mr. Watt. Thank you.
    Mr. Bynum and Ms. Bridges, I think both of you touched on a 
point that I wanted to pick up on. Mr. Bynum first, I didn't 
realize that this new program that the President just announced 
didn't include, or I guess I never focused on it. I would have 
asked the first panel why non-insured depository institutions 
were not included in that. Can you give me a little history on 
that? Is there some possibility that they will include it? Or 
what can we do to expedite that?
    Mr. Bynum. We certainly hope that will be the case. We have 
worked with the Administration, with the Office of Financial 
Stability for several months now, and industry representatives 
have presented recommendations for including nondepositories in 
the TARP program.
    Mr. Watt. And what is your perception of their reaction to 
that? Are they supportive, do you think or--
    Mr. Bynum. I think the easiest path, and that is relatively 
speaking, was to piggy-back on the previous structure that 
worked with depositories and relied on the insurers to help do 
the due diligence and the qualifying of who is viable and can 
handle TARP funds.
    Mr. Watt. But CDFIs have been vetted pretty aggressively to 
get through the process. The only difference there is you are 
not insured, and I guess the banking institutions are insured, 
so that reduces the risk some, I suppose.
    Mr. Bynum. That is right. And there is a third party 
regulator that helps vet additionally. We feel that loan funds 
go through a certification that is rigorous by the CDFI Fund. 
The CDFI Fund will need additional resources in order to 
monitor the additional entities that got TARP funds, but that 
was our recommendation, is that the CDFI Fund play the role of 
the regulator and monitor those loan funds.
    Mr. Watt. Okay. We will try to pick up. Give us as much 
information as you can about that, so maybe we can get a 
coalition of people who can push the Administration on that 
issue.
    Mr. Bynum. Mr. Watt, I would like to mention that there is 
a great opportunity, there are over 30 loan funds that have new 
markets allocations with over almost a billion dollars that 
cannot get debt that could be leveraged if loan funds had 
access to TARP funds.
    Mr. Watt. Give us some information on that, too. We will 
try to push it. But it won't help if the ones who are eligible 
for this new fund or new funding don't use it.
    So, Ms. Bridges, you fit in that other category. You heard 
me ask the first panel about whether this was going to be 
aggressively used by the insured depository institutions who 
are eligible for it. Do you think this is a robust enough 
program that you and other banks similarly situated, other than 
the uninsured ones that I just got through talking about; are 
you going to use it?
    Ms. Bridges. Representative Watt, thank you very much for 
that question. Without a doubt, the Community Development 
Bankers Association that represents the 62 certified CDFIs, 
bank certified CDFIs, have been lobbying pretty hard for this. 
It is certainly very cost effective for us. We tend to have 
greater operating expenses than traditional banks. And it also 
offers us an opportunity to have that kind of cushion for a 
longer term than in the past. And certainly, this is something 
that our, my colleagues have been lobbying to have on the table 
for us to be able to spur our additional lending in that area.
    Mr. Watt. So are there any impediments in there? What 
about--I saw something in the paperwork I was given that says 
you can't pay dividends. You can't pay dividends to your 
existing stockholders, or, and maybe I was misreading it. Is 
that an impediment?
    Ms. Bridges. You are correct. For the CitiFirst Bank, it is 
not an impediment. We currently do not pay dividends. Most of 
our stock shareholders are public institutions or institutional 
investors where we currently do not--
    Mr. Watt. Some of these entities do pay dividends to their 
stockholder companies.
    Ms. Bridges. Yes. And there are a number of institutions 
that are also CDFIs that were awarded the original TARP 
program, and they have, in many cases, withheld dividend 
payments to some of their shareholders. For the most part, they 
have worked around that as an issue. That still is a little bit 
of a stumbling block for some of us.
    Mr. Watt. Thank you so much for your testimony. It has been 
great to hear some good experiences out there in the community, 
even though they need to be replicated and expanded. Thank you.
    Ms. Waters. Thank you very much.
    Mr. Green?
    Mr. Green. Thank you, Madam Chairwoman.
    Ms. Barrera, good to see you again. And of course, I know 
of your good works in Texas. You mentioned streamlining the 
process, and you talked about prior beneficiaries. Would you 
give us a further explanation in terms of how it would be 
beneficial to have the application process benefit prior 
beneficiaries who have a good track record?
    Ms. Barrera. Thank you, Representative Green.
    Yes, the fact that the customer comes in is not a problem 
to us, and we have customers coming in and applying. Our 
problem is the liquidity. So if you have an organization that 
has a good track record, a good track record of deployment, not 
sitting on the money, but putting it out on the street as soon 
as you get it, that is what we are recommending for the CDFI 
Fund, to look at someone, for example, our organization who has 
been deploying the funds when they get them since 1996 from our 
first award, so that it becomes a relationship of just--that is 
the way we work with our customers as well, where we build that 
relationship that is there. And of course, there is 
accountability behind it as well, that the numbers don't lie in 
terms of our audits and so on; that if you continue to perform 
at this level, then we should be in a different category, if 
you will, than struggling, unsustainable, newer CDFIs that need 
more technical assistance and so on.
    But, Representative Green, the first 12 years of our 
operation, I believe we were in the laboratory stage. Micro 
lending, micro finance comes from developing countries. And a 
lot of organizations that started micro lending back in the 
early 1990's are no longer in existence. We are now the largest 
micro lender serving these two markets and helping 13 other 
CDFIs across the country reach scale as well.
    So, in that laboratory stage, we found out what works and 
what doesn't work. We now have a machine. What it needs is gas 
to continue to move the machine. And so if we could, then, 
raise great standards that we would all be working with and 
towards, then I think the CDFI allocations would then be 
benefiting more people. There is a whole theory, is it breadth 
or depth? Do you want to help as many people, or do you want to 
help fewer people but go deeper? I think there is a need for 
both, but in terms of technical assistance on the depth part, 
but on the breadth part, access to capital, as we have already 
described, is such a need in our country right now.
    Mr. Green. You have forged relationships with banks, have 
you not? Explain how you have worked your relationships with 
banks, please.
    Ms. Barrera. Because of the Community Reinvestment Act, 
about a third of our funds do come from banks. And 
specifically, one example I would like to share, which was the 
first in the country, the first in the United States, is the 
relationship that we have with Citi; that Citi wanted to do 
micro finance in the United States and didn't know how to 
underwrite these loans, but went and looked at our portfolio, 
looked at how we do our business and invested $30 million that 
they, we are selling part of our portfolio every month to Citi. 
So it is a secondary source, right, for us which was never--
unheard of because we are not--in our industry, it is hard to 
get ratings. We are not rated. And so by them taking--what we 
are doing is sharing the risk and sharing the wealth, the 
revenue with Citi. And we work with many, many other banks 
across the country where they either invest in us for a return 
or provide us grants through their foundations. So that is how 
we get our operational funds.
    Mr. Green. And have you been moving into Louisiana, after 
Hurricane Katrina? Because I know that Texas is in your name, 
and so obviously you are in Texas. But I think you are bigger 
than Texas, are you not?
    Ms. Barrera. That is correct. We are ACCION Louisiana as 
well. And so we were asked to go in there, and were provided 
funds. And that, again, came from banks, and it came from 
foundations and municipalities. We presently have offices in 
New Orleans and Alexandria. We will open up an office in 
Shreveport within the next 2 months, and then in Baton Rouge, 
hopefully, by the end of the year.
    Mr. Green. Affordable housing, is that a part of your 
portfolio?
    Ms. Barrera. No, sir. A hundred percent of our portfolio 
are small business loans.
    Mr. Green. Okay. Well, who is dealing with the affordable 
housing portfolio?
    Okay. Ms. Kennedy, tell me a little bit, if you would, 
about your affordable housing portfolio. Have you gone into 
areas, say, for example the Lower Ninth Ward in New Orleans? Do 
you have any projects in that area?
    Ms. Kennedy. We don't have a member in Louisiana. We worked 
very hard for a very long time to get the Louisiana Bankers 
Association to follow in the model of Alabama, California, 
Oregon, and Hawaii and start a multibank affordable housing 
lender. But, to my knowledge, it never happened.
    Mr. Green. Okay. I will yield back. My time is up.
    Thank you, Madam Chairwoman.
    Ms. Waters. Thank you very much.
    Mr. Cleaver?
    Mr. Cleaver. Thank you, Madam Chairwoman.
    Ms. Bridges, and the question is to you and Ms. Fiddler. I 
know where her bank is located. Can you tell me where in D.C. 
your bank is located?
    Ms. Bridges. Our branch is located at 1432 U Street, right 
in the historic district.
    Mr. Cleaver. Have your CDFI loans performed well?
    Ms. Bridges. For the most part, our CDFI loans are our core 
loans in the bank, and they have performed well. However, we 
have had, like many traditional banks, some problems with and 
we have seen some deterioration.
    Mr. Cleaver. Well, considering the economy--
    Ms. Bridges. Yes. We are--
    Mr. Cleaver. Ms. Fiddler, would you say the same thing?
    Ms. Fiddler. I think they are holding pretty strong for the 
most part. Dewey and Ziebach Counties are very rural and 
remote, less than one person per square mile, so that the 
markets available for folks out there, we do mainly Main Street 
private sector, trying to create and stimulate economy outside 
of this because we don't see CRA; we are creating economy. So 
it is just a little bit different version than the rest of the 
scope. But for that high-risk market where you don't have any 
other options, I think they are doing very well--less than 1 
percent defaults.
    Mr. Cleaver. Well, do you think it would be interesting if 
we compared CDFIs, their loans, with some of the other banks, 
depository banks that are--many of them are in trouble, have 
been in trouble? I don't know if there is any data available, 
but it would be interesting to compare the performance of 
loans. The reason I raise that question is, I think, despite 
the relatively high success in CDFIs, we find that the funding 
is almost--the number of applicants who seek CDFIs is twice the 
number that receive the loans because we don't have the--the 
pot is virtually empty. And I have tried unsuccessfully, with 
the last panel, and one of my colleagues did the same, to try 
to find out what do we have to do to get additional dollars? I 
am assuming that all of you would like to have additional 
dollars. I know that is a difficult question, but struggle 
through it and tell me yes. All right. We have $250 million in 
grants in 2010. But as I said, that is one-half, exactly one-
half of the people who applied. So I am--some of these 
questions are for the Treasury, obviously. But they are gone, 
so I need to find out from you, and these are probably 
softballs to you guys. But if we had more money, would we be 
able to better meet the demand and still make good loans?
    Ms. Kennedy. Let me just say that those numbers you quoted, 
Mr. Cleaver, about half being denied don't even reflect the 
true need. There are hundreds of CDFIs that don't even apply 
since 2003 because the regulations have so changed what is 
funded that it is not worth Alabama getting certified; it is 
not worth Massachusetts applying. California did apply this 
year and got turned down despite their stellar track record. 
So, for example, our 25 nonprofit CDFIs, nonprofit mission-
driven lenders, could do double their 2008 production this year 
if they had liquidity.
    Mr. Cleaver. Well, in the difficult areas where you work, 
are you seeing competitive applications going forward for new 
market tax credits?
    Mr. Bynum. In Mississippi, where, arguably, there should be 
a significant investment by the CDFI Fund, only $480,000 out 
of, I think, $40 million made to Mississippi.
    Mr. Cleaver. Say that one more time, please.
    Mr. Bynum. $480,000 out of a total of $170 million in 
financial assistance awards were in Mississippi, the poorest 
State. On the new markets, only $40 million of $14 billion in 
Mississippi. There were applications. I can't speak to the 
quality of the applications. The CDFI Fund would have to do 
that. But there is certainly a demand and there is a viable 
demand for increased funds in our State and in other severely 
distressed areas.
    Mr. Cleaver. Well, the red light is on, but I think the 
point has been made.
    Thank you, Madam Chairwoman.
    Ms. Waters. Let me just thank the panel for being here 
today with the most informative testimony. And the Chair notes 
that some members may have additional questions for this panel 
which they may wish to submit in writing. Without objection, 
the hearing record will remain open for 30 days for members to 
submit written questions to these witnesses and to place their 
responses in the record. The hearing is adjourned.
    [Whereupon, at 4:26 p.m., the hearing was adjourned.]

                            A P P E N D I X



                             March 9, 2010

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