    [Senate Hearing 117-348]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 117-348

                      EXPLORING HOW COMMUNITY DEVELOPMENT
             FINANCIAL INSTITUTIONS SUPPORT UNDERSERVED COMMUNITIES

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

                                    HEARING

                                   before the

                                SUBCOMMITTEE ON
               HOUSING, TRANSPORTATION, AND COMMUNITY DEVELOPMENT

                                     of the

                                  COMMITTEE ON
                       BANKING,HOUSING,AND URBAN AFFAIRS
                              UNITED STATES SENATE

                        ONE HUNDRED SEVENTEENTH CONGRESS

                                 SECOND SESSION

                                       ON

    EXAMINING THE CHALLENGES FACED BY UNDERSERVED COMMUNITIES WHEN IT COMES
                 TO ACCESSING CAPITAL AND THE FINANCIAL SYSTEM

                                   __________

                                JANUARY 5, 2022

                                   __________

      Printed for the use of the Committee on Banking, Housing, and Urban
                                    Affairs

                       [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                    Available at: https: //www.govinfo.gov /

                                   ______

                     U.S. GOVERNMENT PUBLISHING OFFICE

    48-389 PDF                WASHINGTON : 2023

                COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                         SHERROD BROWN, Ohio, Chairman

    JACK REED, Rhode Island              PATRICK J. TOOMEY, Pennsylvania
    ROBERT MENENDEZ, New Jersey          RICHARD C. SHELBY, Alabama
    JON TESTER, Montana                  MIKE CRAPO, Idaho
    MARK R. WARNER, Virginia             TIM SCOTT, South Carolina
    ELIZABETH WARREN, Massachusetts      MIKE ROUNDS, South Dakota
    CHRIS VAN HOLLEN, Maryland           THOM TILLIS, North Carolina
    CATHERINE CORTEZ MASTO, Nevada       JOHN KENNEDY, Louisiana
    TINA SMITH, Minnesota                BILL HAGERTY, Tennessee
    KYRSTEN SINEMA, Arizona              CYNTHIA LUMMIS, Wyoming
    JON OSSOFF, Georgia                  JERRY MORAN, Kansas
    RAPHAEL WARNOCK, Georgia             KEVIN CRAMER, North Dakota
                                         STEVE DAINES, Montana

                         Laura Swanson, Staff Director

                     Brad Grantz, Republican Staff Director

                          Cameron Ricker, Chief Clerk

                          Shelvin Simmons, IT Director

                            Pat Lally, Hearing Clerk

                                     ______

       Subcommittee on Housing, Transportation, and Community Development

                          TINA SMITH, Minnesota, Chair

              MIKE ROUNDS, South Dakota, Ranking Republican Member

    JACK REED, Rhode Island              RICHARD C. SHELBY, Alabama
    ROBERT MENENDEZ, New Jersey          MIKE CRAPO, Idaho
    JON TESTER, Montana                  BILL HAGERTY, Tennessee
    CATHERINE CORTEZ MASTO, Nevada       CYNTHIA LUMMIS, Wyoming
    CHRIS VAN HOLLEN, Maryland           JERRY MORAN, Kansas
    JON OSSOFF, Georgia                  KEVIN CRAMER, North Dakota
    RAPHAEL WARNOCK, Georgia             STEVE DAINES, Montana

                    Tim Everett, Subcommittee Staff Director

             Kathleen Gayle, Republican Subcommittee Staff Director

                                      (ii)

                                C O N T E N T S

                                  ----------

                           WEDNESDAY, JANUARY 5, 2022

                                                                       Page

    Opening statement of Chair Smith.................................     1

    Opening statements, comments, or prepared statements of:
        Senator Rounds...............................................     3

                                   WITNESSES

    John Holdsclaw, IV, President, CDFI Coalition, Washington, D.C...     5
        Prepared statement...........................................    28
        Responses to written questions of:
            Chair Smith..............................................   134
            Senator Menendez.........................................   135
            Senator Warnock..........................................   136
    Frank Altman, Founder and CEO, Community Reinvestment Fund, USA,
      Minneapolis, Minnesota.........................................     6
        Prepared statement...........................................    33
        Responses to written questions of:
            Chair Smith..............................................   139
            Senator Menendez.........................................   152
            Senator Warnock..........................................   153
    Lakota Vogel, Executive Director, Four Bands Community Fund,
      Eagle Butte, South Dakota......................................     8
        Prepared statement...........................................   132
        Responses to written questions of:
            Chair Smith..............................................   156
            Senator Menendez.........................................   156
            Senator Warnock..........................................   156

                  Additional Material Supplied for the Record

    GAO Report: Federal Home Loan Banks..............................   157

                                     (iii)

                      EXPLORING HOW COMMUNITY DEVELOPMENT
             FINANCIAL INSTITUTIONS SUPPORT UNDERSERVED COMMUNITIES

                                  ----------

                           WEDNESDAY, JANUARY 5, 2022

                                   U.S. Senate,
      Committee on Banking, Housing, and Urban Affairs,
        Subcommittee on Housing, Transportation, and Community
                                                   Development,
                                                        Washington, DC.
        The Subcommittee met at 10 a.m., via Webex, Hon. Tina
    Smith, Chair of the Subcommittee, presiding.

                 OPENING STATEMENT OF CHAIR TINA SMITH

        Chair Smith. Good morning. I call the Subcommittee on
    Housing, Transportation, and Community Development to order.
        Today, we are going to take a look at Community Development
    Financial Institutions or CDFIs. Our hearing will explore how
    the Federal Government can help support their innovative work
    and how we can work together to address some of the challenges
    faced by underserved communities when it comes to accessing
    capital and the financial system.
        The COVID-19 pandemic has not been the great equalizer. It
    has laid bare the disparities in our society that existed
    before the pandemic, and too often it is Black and Brown and
    indigenous families who have faced the most significant
    burdens.
        But the economic disparities did not start, as I said,
    during the pandemic. According to the Federal Reserve, as of
    2019, a typical Black family's net worth was just 15 percent of
    a typical White family's worth; a typical Hispanic family's net
    worth was about 19 percent of a White family's; and, the
    typical net worth for Native American families is also just a
    fraction of the typical White family's. While there are many
    causes for this great inequity, one factor is a lack of access
    to capital and to financial services for people of color,
    indigenous communities, and in small towns and rural places.
        When the CDFI Fund, the Federal agency that oversees CDFI
    programs, when it was established in 1994, there were about 80
    CDFIs. Today, there are more than a thousand, many with
    innovative models that were not even imagined when the CDFI
    Fund was first established, and they have played a critical
    role in bringing capital and financial services to a wide
    variety of underserved communities, from urban areas to small
    towns and rural places to tribal lands. For instance in
    Minnesota, the African Development Center helped fund two malls
    that have more than 450 African small businesses and over 500
    jobs.
        The Indian Land Company, the ILCC, Indian Land Capital
    Company, forgive me, made a loan of nearly $1 million to the
    Lower Sioux to allow them to expand their land by about 10
    percent. I appreciated the opportunity to visit with them last
    summer and learn about this project.
        And in 2018 I visited University Enterprise Labs, which was
    funded in part by Sunrise Banks, which is a certified CDFI,
    with support from the New Markets Tax Credit Program. Those
    funds have helped expand the cutting-edge life sciences
    incubator in an area that is currently shared by industrial
    uses and students on the border of St. Paul and Minneapolis.
        With their successful track record of reaching underserved
    communities, Congress has looked to CDFIs as effective
    community development organizations to implement programs. So
    here is just a few examples:
        In 2000, Congress enacted the New Markets Tax Credit, which
    provides tax incentives to allow CDFIs to work on economic
    development projects in economically distressed areas. That
    program has proven successful, and I am glad to be a supporter
    of bipartisan legislation from Senator Cardin and Senator Blunt
    to update and expand that tax credit.
        During the Great Recession, Senator Menendez offered
    legislation to establish the CDFI Bond Guarantee Program. The
    bond guarantee program provides stable, long-term sources of
    capital for CDFIs without any subsidy from taxpayers. Earlier
    this week, Senator Rounds and I introduced legislation to make
    that program permanent and to adjust some of its loan
    requirements to make it more accessible to smaller CDFIs who
    might want to participate. I am looking forward to hearing from
    our witnesses today about how our legislation could make a
    difference for community development.
        In 2020, Congress set aside $25 billion of PPP lending for
    CDFIs to distribute because CDFIs have relationships with many
    communities that banks and credit unions just were not able to
    reach. CDFIs made more than 100,000 PPP loans in the first
    months of that program, and that effort was critical to helping
    thousands of small businesses stay afloat.
        In addition, in the bipartisan, year-end funding package
    that we enacted at the end of 2020, Congress made an historic
    investment in CDFIs and Minority Depository Institutions,
    providing rapid relief grants. As a result of that program, 27
    Minnesota CDFIs received grants totaling $38 million, funds
    that will be invested in our State to support new lending and
    services. Senator Warner played an important role in getting
    this investment enacted, and I know that many of us supported
    the work that he has done. I look forward to hearing from our
    witnesses today about how that funding is making a difference
    in their communities.
        So before I turn to Senator Rounds, I would like to thank
    Mike for being such a good partner in planning and organizing
    this hearing. As you were saying at the beginning, this is a
    hearing where we tend to focus on what we can find agreement
    on, on where we can find common ground, and approach this from
    a perspective of solutions, and that is very important. I know
    that we have a shared interest in building strong communities
    in our States and around the country and especially in
    supporting economic development and access to capital in the
    indigenous communities that both of our States share.
        As I mentioned before, yesterday we joined together to
    introduce together legislation to update the CDFI Bond
    Guarantee Program to make it more available for smaller CDFIs.
    And we have also done legislation together to support access to
    mortgages for Native Americans in a partnership between CDFIs
    and the U.S. Department of Agriculture. So I am hopeful that
    today's hearing will help us identify additional areas where we
    can work together and pave a path to advancing these important
    pieces of legislation and others that we will hear about today.
        So, Senator Rounds, thank you so much for your partnership,
    and you are now recognized.

                OPENING STATEMENT OF SENATOR MIKE ROUNDS

        Senator Rounds. Thank you, Madam Chair, and let me
    reciprocate as well. I most certainly have appreciated the
    opportunity to work directly with you and your team. I think
    this is the way the legislative process should work, and I have
    appreciated your openness to having these discussions. And I
    look forward to additional legislation being an item that can
    be moved forward from this Subcommittee and perhaps actually
    making some very positive changes throughout the Midwest and
    hopefully across the rest of the country. So I thank you for
    your leadership, and I thank you for your interest in
    cooperating and in working together.
        I also want to thank our witnesses for taking the time to
    virtually attend today's hearing. I would especially like to
    thank Ms. Lakota Vogel, from my home State of South Dakota, for
    her willingness to testify. I look forward to hearing from all
    of you.
        Community Development Financial Institutions, or CDFIs, are
    critical in rural South Dakota as they provide services to the
    underserved communities that often fall through the cracks of
    our traditional financial systems. It is because of these
    institutions that many can buy their first home or launch a
    business that will bring much-needed jobs to a rural community.
        Today, however, I mainly want to focus my remarks on the
    impact Native CDFIs have on Native populations as well as the
    challenges which they still face. Native CDFIs are unique
    because they are anchored in local culture and are passionate
    about creating opportunities for long-term growth. As members
    of the community themselves, staff members know how to bridge
    the gap between cash economies and traditional financial
    products. They also play an important role in laying the
    groundwork for new investment in Native communities by
    providing access to capital financial assistance and literacy.
    This results in new Native-led businesses, opportunities for
    entrepreneurship, and additional jobs.
        Oftentimes, Native CDFIs are the first encounter Native
    families and individuals have with financial institutions.
    Because Native CDFIs serve a large unbanked population, they
    will often refer individuals to a local bank to open an
    account, many of whom are the first in their generation to do
    so and begin a journey toward financial stability.
        A recent study by the Minneapolis Fed found that trust
    between a borrower and a lender is critical for a successful
    loan. And since Native CDFIs design their services to include a
    cultural element, they can better build that trust. By
    providing financial workshops, training, and counseling that
    integrates cultural values in community-specific situations,
    Native CDFIs lead to more robust credit building.
        The Minneapolis Fed researchers also found that
    establishing Native CDFIs on or near reservations can improve
    individuals' credit outcomes. What is best for the 5,000-person
    town of Eagle Butte, South Dakota, is different from what is
    best for Native populations in the Black Hills of South Dakota.
    And since they are able to tailor their programs to their
    specific community, they find more success.
        The Minneapolis Fed reported that adding just one Native
    CDFI staff member per 1,000 residents leads, on average, to a
    45-point increase in the Equifax risk score of individuals who
    have low creditworthiness.
        Even though our Native CDFIs are able to be effective, they
    still face challenges. Adequate capital access continues to be
    a problem as demand in Native areas is outpacing supply. The
    Chair and I have worked on several pieces of legislation to try
    to increase access to this much-needed capital. Last year, we
    introduced the Native American Rural Homeownership Improvement
    Act, which would expand the USDA 502 lending pilot program,
    where USDA partnered with Native CDFIs to employ loans to
    eligible Native borrowers. Senator Smith and I also introduced
    legislation today that would lower the minimum bond offered by
    the CDFI Bond Guarantee Program from $100 million to $25
    million in order to increase access to smaller CDFIs, like
    Native CDFIs. These are just a few of the ways we have tried to
    address this problem, and I look forward to exploring this
    issue and others during this hearing.
        Again, we welcome all of you here today to our first
    Subcommittee hearing of 2022, and I look forward to hearing
    from our witnesses on Native CDFIs and traditional CDFIs.
        Thank you, and thank you, Madam Chair.
        Chair Smith. Thank you so much, Senator Rounds.
        I am now going to introduce our witnesses. I am so grateful
    to all of you for joining us today. I will introduce all three
    of you at once and then turn to each of you to make your
    opening statements.
        First, I would like to welcome John Holdsclaw, IV, as
    President of the CDFI Coalition and Executive Vice President of
    Strategic Initiatives at the National Cooperative Bank in
    Washington, DC, Welcome, Mr. Holdsclaw.
        I am delighted to welcome Frank Altman, who is the founder
    and CEO of Community Reinvestment Fund, USA, based in my
    hometown of Minneapolis, Minnesota. Welcome, Frank.
        And also, it is wonderful to have join us today Lakota
    Vogel, who is Executive Director of the Four Bands Community
    Fund in Eagle Butte, South Dakota. Welcome, Lakota, Ms. Vogel.
        Welcome to all of you for your willingness to speak with us
    today.
        And before you begin your opening statements, I have a few
    reminders. Once you start speaking, there will be a slight
    delay before you are displayed on the screen. And to minimize
    any background noise, please click the mute button until it is
    your turn to speak or to ask questions.
        You should all have one box on your screens labeled
    ``clock'' that will show how much time you have remaining. For
    witnesses, you will have 5 minutes for your opening statements,
    and your full written statements will be made part of the
    record. For all Senators, the 5-minute clock applies for your
    questions. When you have about 30 seconds remaining for your
    statements or questions, you will hear a little bing, a little
    bell ring to remind you that your time is almost expired. It
    will ring again when your time has expired.
        And if there is any technology issue, we will move to the
    next witness or Senator until we get it resolved.
        To simplify the speaking order process for Senators,
    Senator Rounds and I have agreed to go by seniority for this
    hearing as we are fully virtual, and we will proceed first
    through Subcommittee Members by seniority and then turn to any
    non-Subcommittee Members in order of seniority who wish to ask
    questions.
        I will now turn to Mr. Holdsclaw for 5 minutes for your
    opening statement.

      STATEMENT OF JOHN HOLDSCLAW, IV, PRESIDENT, CDFI COALITION,
                            WASHINGTON, D.C.

        Mr. Holdsclaw. Thank you, Chairwoman Smith, Senator Rounds,
    and Members of the Subcommittee. My name is John Holdsclaw, IV.
    I am the President of the CDFI Coalition and EVP of Strategic
    Initiatives at the National Cooperative Bank. Thank you for
    this opportunity today to testify on the CDFI Fund and the
    success of CDFIs in delivering financial services to
    underserved, low-income, urban, rural, and Native communities.
        The CDFI Coalition is a national membership organization
    made up of more than 150 organizations, including loan funds,
    community development banks, community development
    corporations, venture funds, microlenders, Native American
    organizations, and credit unions.
        The Fund was established in 1994 as a key policy apparatus
    for revitalizing disadvantaged communities, especially those
    hit very hard during the COVID pandemic. However, before the
    pandemic, low-income communities, rural, tribal, and
    communities of color faced significant obstacles in accessing
    financial services. Today, the Fund has more than 1,300
    certified CDFIs across the country, providing community
    development and lending services in all sizes and types of
    communities. These CDFIs leverage $12 in private capital for
    every dollar in Federal support.
        In fiscal year '22, the CDFI Fund financial assistance
    awards unleashed $39 billion loans and investments to 125,000
    businesses and millions of individuals. They financed 50,000
    units of affordable housing and thousands of nonprofits and
    facilities. Native CDFIs have made $1.6 billion in loans and
    investments.
        In regards to PPP, or the Paycheck Protection Plan,
    Congress established a set-aside. And according to SBA, through
    May of 2020, CDFIs, or community financial institutions
    including CDFIs, made 1.3 million PPP loans totaling $30
    billion or 21 percent of all the loans. The average loan size
    was $21,000 compared to $41,000 across all other lending
    classes. For example, 78 percent of all community financial
    institution PPP loans went to businesses requesting less than
    $250,000. Moreover, 15.7 percent of all of those community
    financial institutions-made loans were made to businesses in
    rural communities, closely keeping with the 16.6 percent of all
    the loans that went to rural businesses.
        So with the recent growth in the industry, it presents both
    opportunities and challenges. The Federal Government--and thank
    you--has made an unprecedented investment into CDFIs over the
    past several years with the hope of scaling the industry and
    expanding its impact. However, Congress and the CDFI Fund can
    do more to scale the CDFI movement while ensuring that
    certified CDFIs maintain their role as trusted, mission-driven
    lenders in underserved communities.
        The CDFI Coalition urges Congress to provide $1 billion in
    annual appropriations for CDFI assistance programs through the
    CDFI Fund. The CDFI Coalition urges Congress to invest more in
    CDFIs by increasing the annual authorization level to $1
    billion for the CDFI Fund. We believe that this will result in
    the financing of an additional 100,000 affordable housing
    units, thousands of loans and investments in childcare centers,
    health centers and community facilities, nearly 2 million
    consumer and home ownership loans, and hundreds of thousands of
    loans in investments in businesses in targeted areas.
        The CDFI Fund also strongly encourages Congress to build
    the administrative capacity of the Fund. To sustain the recent
    momentum and growth in the industry, Congress should provide
    additional resources to the agency to administer a growing
    portfolio of financial assistance awards, bonds, and tax
    credits.
        We also support the Bond Guarantee Improvement Act--thank
    you, Senator Smith, and thank you, and Senator Rounds--that was
    introduced yesterday. The permanent extension and other
    improvements contained in that legislation have the potential
    to further prompt revitalization in distressed and rural
    communities.
        All said, thank you again for the opportunity to be here
    today to talk about the impact of community financial
    institutions, Community Development Financial Institutions or
    CDFIs, and I welcome the opportunity to answer any questions
    that you may have. Thank you.
        Chair Smith. Thank you so much. Now we turn to Mr. Altman.

         STATEMENT OF FRANK ALTMAN, FOUNDER AND CEO, COMMUNITY
             REINVESTMENT FUND, USA, MINNEAPOLIS, MINNESOTA

        Mr. Altman. Thank you, Chair Smith, Ranking Member Rounds,
    and distinguished Members of the Subcommittee. I am pleased to
    participate in this important hearing to discuss the role of
    CDFIs in supporting underserved communities.
        I am Frank Altman, CEO and cofounder of Community
    Reinvestment Fund. We are a national CDFI based in Minneapolis
    whose mission is to help improve lives and strengthen
    communities through innovative financial solutions. We were
    certified as a CDFI in 2009. However, we have been active as an
    organization since 1988. So we have been around for more than
    30 years working in these markets.
        CRF has been the beneficiary of six financial assistance
    awards and the rapid response grant. We have received $919.5
    million in New Markets Tax Credit allocations across--since the
    beginning of the NMTC program, and we have also issued $940
    million in bonds on behalf of 8 CDFIs as a qualified issuer for
    the CDFI Bond Guarantee Program. Since our founding, we have
    deployed more than $3.5 billion in financing in serving more
    than 2.3 million people, and we have made loans to small
    businesses in more than 1,000 mostly low-income communities in
    all 50 States and the District of Columbia, creating or
    preserving more than 156,000 jobs.
        Early on, in response to the need for liquidity for
    revolving loan funds and organizations that were lending in
    these communities, we created the first secondary market for
    community development loans and issued the first asset-backed
    securities collateralized by these assets. Our vision was to
    connect community-based lenders to private investors in the
    public capital markets, and we continue to work toward that
    effort.
        Over the years, we have funded more than 9,000 small
    business loans, two-thirds of which went to businesses owned by
    women or people of color. And our deep expertise in small
    business lending led us to obtain an SBA nonbank national 7(a)
    license, one of now three nonbank CDFIs offering this product
    nationally.
        Today, I want to focus my remarks particularly on the work
    that we have done both nationally and in Minnesota to reflect
    on what we have learned. CRF has a long history of partnering
    with other CDFIs. We have worked with more than 250 CDFIs and
    development finance agencies over the years, both nationally
    and in the Twin Cities.
        And in Minneapolis, more than a decade ago, we made more
    than 100 subordinate loans to support small businesses along
    Lake Street, Franklin Avenue, and primarily in the Phillips and
    Powderhorn Park neighborhoods. We did this in partnership with
    local banks and other CDFIs, and our joint efforts revitalized
    these neighborhoods, resulting in a 62 percent decline in crime
    from 1988 to 2009 and rising property values. This lending laid
    the foundation for a major redevelopment project, the Midtown
    Exchange, a former Sears distribution center, long vacant more
    than 10 years, with 2 million square feet, a very daunting
    project to redo. But working with the city and the strategy the
    city had for this development, CRF and two other CDFIs were
    able to provide tax credits from the New Markets Tax Credit
    Program to redevelop this building into a mixed use building,
    including the headquarters for Allina Health, the Allina
    Commons portion of this project, bringing the headquarters of a
    major nonprofit financial health care system into this very
    low-income neighborhood.
        And nearby, in the same neighborhood, we used New Markets
    Tax Credits to finance the Banyan Community, a few blocks from
    the Midtown Exchange. Banyan supports more than 150 children
    with early childhood education and childcare and after school
    programs in a very low-income community.
        Sadly, the murder of George Floyd erased much of the
    progress we made in the Powderhorn Park neighborhood, but we
    stand ready to be a supporter in rebuilding this area along
    Lake Street and others with funds that we are receiving and
    have received from the CDFI Fund and others.
        The pandemic has caused--oh, I am going to run way out of
    time. Sorry about this. I will get back to this in the question
    area, but thank you very much.
        Chair Smith. Thank you, Mr. Altman. We will have a chance
    to hear the rest of your comments, I am sure.
        Next, we will hear from Ms. Vogel.

       STATEMENT OF LAKOTA VOGEL, EXECUTIVE DIRECTOR, FOUR BANDS
               COMMUNITY FUND, EAGLE BUTTE, SOUTH DAKOTA

        Ms. Vogel. Thank you, Chairwoman Smith, Ranking Member
    Rounds, and distinguished Members of the Subcommittee. I am
    honored to have been included as a voice in this important
    hearing, to share the successes and challenges of CDFIs serving
    underestimated communities across the Nation.
        My name is Lakota Vogel. I am an enrolled member of the
    Cheyenne River Sioux Tribe, born and raised on a ranch in South
    Dakota. I am the Executive Director of Four Bands Community
    Fund. It is a 22-year-old rural, Native CDFI that started by
    serving all residents of the Cheyenne River Sioux Reservation
    in north-central South Dakota and expanded in 2013 to serve
    Native entrepreneurs across the entire State. I am on the
    executive committee of the South Dakota Native Homeownership
    Coalition and a member of the Mountain Plains Regional Native
    CDFI Coalition.
        I am here today to share the perspective of on-the-ground
    leaders within the Native CDFI movement, which spans about 69
    separate organizations operating across 27 States. The core of
    our mission and purpose of our programming is aimed at leveling
    inequities stemming from an historic lack of investment and
    access to capital as well as noninclusive policies in the
    communities we serve.
        With over two decades of experience, Four Bands Community
    Fund has continuously improved our products and services to
    successfully deploy over $25 million across the State. We
    utilize an integrated approach in lending, which Ranking Member
    Rounds mentioned. It fuses relationship building and learning
    with loan products. Our suite of programs are designed to
    revive traditional culture and support self-sufficiency by
    focusing on two core areas: entrepreneurship, and consumer
    lending and home ownership.
        So within the entrepreneurship space, Four Bands offers a
    comprehensive business training program alongside of customized
    business coaching. We also have several products to help
    entrepreneurs access capital, up to $250,000, and they can use
    that capital for inventory, leasehold improvements, really any
    commercial purpose. We also operate a business incubator that
    provides physical space in addition to our entrepreneur
    programming for at least six businesses in the community of
    Eagle Butte, South Dakota.
        Our average business loan client is a female head of
    household who dreams of starting a business in the service
    industry that does not require a lot of startup capital. It
    could be like a restaurant, a daycare, a hair salon. In turn,
    these industries have a thin profit margin and have more
    difficulty accessing capital from financial institutions
    because of their small-dollar nature and small balance sheet.
        Four Bands has deployed over $200 million to the small
    business sector--I wish 200 million. Twenty million dollars to
    the small business sector, resulting in the creation and
    expansion of over 300 Native-owned businesses across the State.
    And we can proudly say, due to lots of innovation and partners
    like CRF and Frank Altman and resource stacking, we did not
    lose one small business during the pandemic across the State
    that was within our portfolio.
        The other core area we focus on is consumer and home
    ownership. So a unique challenge within our communities is
    invisible credit histories. We are fortunate to have four
    financial institutions serving the Cheyenne River Sioux
    Reservation, but only one of them, the credit union, reports to
    the credit bureaus. So we have generations of borrowers
    utilizing debt tools for decades at the local financial
    institutions, and they remain invisible. And it is not due to
    any individual borrower choices or behavior, but it is due to
    institutional decisions.
        Four Bands began reporting to the credit bureaus in 2010.
    Our foresight and community-mindedness has primed our market
    for home ownership. So as our balance sheet grew, we were
    finally able to offer mortgage products to our community in
    2019 in partnership with USDA as one of the pilot sites for the
    502 direct lending program. We were able to close 8 mortgages
    and spur the demand to close a total of 42 mortgages on
    Cheyenne River within 1.5 years.
        My recommendations today are simple. Advance the Native
    American Rural Homeownership Improvement Act. Thank you to
    Chairwoman Smith and Ranking Member Rounds for cosponsoring
    this legislation. Access to these funds should include all
    Native CDFIs across the Nation.
        The second recommendation I have is just increase the
    Native American CDFI Assistance appropriations to $50 million
    to meet the needs. Our program needs are increasing across the
    Nation, and the annual appropriations for NACA have remained
    stagnant since 2014.
        All this to say the tool, the Native CDFI tool, works; it
    is just chronically undercapitalized. We are part of the
    communities we serve. We run into our clients at the grocery
    store. We sit on the daycare board of directors, desperately
    trying to keep these vital programs running. And as Native CDFI
    staff and community members, we are woven into the fabric of
    the community in almost every aspect of our clients' financial
    lives. There is no comparison to sitting across from our
    clients at tax time, assessing their earnings for the year and
    planning for the future. We are the gentle nudge to savings
    accumulation and a sounding board for many of the financial
    decisions our families make.
        We believe how you perceive is how you proceed. We perceive
    opportunity because our success as Nation builders is
    intricately woven into the success of our neighbor.
        Thank you for this opportunity to testify.
        Chair Smith. Thank you so much, Ms. Vogel.
        I appreciate all of your testimony really so much.
        We are now going to turn to our first round of questions,
    and I will begin. So let me--I would like to first drill down a
    little bit onto the CDFI Bond Guarantee Program. We noted
    Senator Menendez, who is joining us today, worked on this back
    at the beginning, started this back at the beginning of the--
    during the Great Recession. And yesterday, Senator Rounds and I
    introduced a bill that would reauthorize and update the Bond
    Guarantee Program. And as was mentioned in your testimony, our
    bill would reduce the program's loan size requirements so they
    could be more accessible to smaller CDFIs and for smaller
    community development projects.
        Mr. Altman, let me turn to you first. Could you share some
    examples with us of how the changes that Senator Rounds and I
    are proposing might help get more capital into the hands of
    smaller CDFIs and ultimately into the communities that they
    serve?
        Mr. Altman. Sure. Thank you, Chair Smith. The Bond
    Guarantee Program is a vital program in the CDFI toolbox. Yet,
    it has only been used by about 26 CDFIs, and the biggest
    barrier to utilization has been the need to either come
    together as a group to obtain a $100 million bond or to be a
    large organization that a balance sheet can support $100
    million in debt. And so that has limited the CDFI bond
    guarantee to really the largest CDFIs in the country. And in a
    few cases there have been groups of CDFIs that have come
    together, but it is very difficult because if one CDFI in a
    group decides it has to wait that can just make the program
    inaccessible for all the other CDFIs that are coming together.
    So by lowering the bond size to $25 million, we believe that
    many more CDFIs will be able to access this vital program.
        And why is it so vital? It provides very low-cost, long
    term debt to the balance sheets of CDFIs. So it is being used
    to match-fund long-term assets, particularly in affordable
    housing, daycare, and other facilities that need long-term
    financing. So it is a very, very powerful program if we can put
    it together in a slightly different way.
        Chair Smith. Thank you very much.
        Ms. Vogel, would you like to comment on this as well and
    how you can see this being advantageous to Native CDFIs?
        Ms. Vogel. You know, honestly, we support all of--the CDFI
    industry is great in that we all support one another, and I
    trust Frank and John and the work that they do with the
    advocacy. You know, as a person on the ground doing the work,
    it is nice to have the big brothers out there watching out for
    these things, and so we have been getting updates from them on
    passing this. So we definitely support the legislation that has
    been, you know, advanced by you and Ranking Member Rounds.
        So we are looking forward to learning more from CRF and the
    CDFI Coalition about how we can better utilize the program, but
    longer-term debt to match what is needed within our community,
    you know, sounds like a win to me.
        Chair Smith. Thank you so much. Let me ask you, stay with
    you, Ms. Vogel. Senator Rounds mentioned this, as did I, that
    he and I have introduced legislation to make permanent a
    program to expand access to mortgages in tribal communities.
    Our bill is based on a pilot that USDA has been conducting in
    South Dakota, in which they partner with Native CDFIs to make
    loans under the USDA's Section 502 mortgage lending program.
    And I know that you have been involved in this pilot program.
    Could you just talk a little bit with us about how the pilot
    program helped to serve the Cheyenne River Sioux and what you
    see as the community benefit of this strategy?
        Ms. Vogel. Yeah, as I mentioned before, there have not been
    any private mortgages on Cheyenne River Sioux Reservation for a
    very long time. If there are mortgages, it is wrapped into a
    small business loan or an ag loan or a personal loan, and so
    the USDA capital allowed us to develop a mortgage product for
    the market. And I hate to even say the word ``mortgage'' within
    my market because it spurred such a demand there where we have
    had a pipeline of over, you know, $18 million of demand for
    mortgage products.
        So the 502 product allowed us the longer term debt capital
    to begin serving the market and priming for home ownership.
    Without that, we would not have been able to deploy the 42
    mortgages that we have closed in the year and half that we have
    been operating the product.
        Chair Smith. Thank you so much.
        I really appreciate the partnership with Senator Rounds on
    this, and I think I will turn the questioning now to Senator
    Rounds.
        Senator Rounds. Thank you, Madam Chair.
        Ms. Vogel, I am going to continue with you for just a
    minute, and that is, as Senator Smith has indicated and has
    talked a little bit about, I really think it is important to
    talk about the USDA 502 pilot program and the reason why it was
    successful there at--you know, within north-central South
    Dakota.
        You are talking about a rural area, and you are talking
    about an area which is on the reservation, which means that a
    lot of the land is in tribal trust. And since it is in tribal
    trust, is that one of the reasons why we are really looking for
    a local understanding of what it means to be able to get a
    mortgage and how you actually get title to the land and so
    forth? Can you talk about that a little bit in terms of how
    critical this particular 502 lending program might impact other
    tribal trust land areas as well?
        Ms. Vogel. Yeah. I think it goes back to relationship
    lending and all CDFIs are based off of relationship lending. So
    while tribal trust has its complexities, it is really about the
    CDFIs walking alongside with their customers down to the BIA
    realty office to begin processing the paperwork. Instead of me
    remaining in my desk and sending my client, you know, down the
    path of where they should go next, we actually walk with them
    through that process. And so the relationships that we hold on
    the ground, taking donuts to the realty officer so they speed
    up the TSR certification process, it is all a little trick of
    the trade and the importance of us being here and understanding
    what it means to develop homes within our communities.
        So, yes, on-the-ground is important. Understanding how home
    ownership affects community development and ultimately economic
    development is important to that. Tribal trust is complex, but
    anybody can do it if you are willing to invest in your
    community.
        Senator Rounds. The Four Bands Community Fund, which is the
    name of your organization, tell me because I think there is a
    lot of folks out there that maybe do not understand how small
    we really are. How many folks actually work--how many lenders
    do you have? How many staff members do you have there?
        Ms. Vogel. I have eight staff members, nine including
    myself, but really just three that are working on the lending
    side. Because we offer the technical assistance and the program
    development, we have, you know, more team focusing on the
    education components within the community.
        Senator Rounds. We talked about first-generation
    individuals that are actually getting involved in financial
    institutions and lending. Can you share a little bit about the
    challenges of moving from a cash economy to one in which you
    have a relationship with a lender and the expertise and the
    walking through the steps of what you do for an individual
    member or family when they come in?
        Just an average family in terms of somebody on the res
    there, they are in the ag community or whatever, and they come
    in, and they are looking for a way to try to get into a home or
    to start a business. What do you find in terms of the
    challenges they face?
        Ms. Vogel. I mean, the first thing is just a lack of
    infrastructure. So you know, you have a daycare or a Head Start
    teacher, a cook, you know, a grandma that is caring for three
    children. She walks into the building and says, I want to buy a
    home for my--my goal is to retire and take care of my three
    grandchildren. And the first thing she does is find land to put
    the house on, and the hard part is getting electric, water,
    sewer, and things like that.
        So what we are asking individuals in rural economies to do
    is to develop piecemeal the infrastructure needed to grow the
    economies, and it is difficult for them because that is an
    outside cost of the loan-to-value. Generally the infrastructure
    improvements are not included in loan-to-value in traditional
    financial institutions. So CDFIs can adjust and view those as
    part of the loan-to-value.
        You know, it really is just that small town relationship
    building, but our average AGI is $27,000, which is, you know,
    half of what the State of South Dakota is earning. So a lot of
    our families are looking to be brought into the mainstream
    financial institutions, and that takes money and time. And that
    is what John Holdsclaw was advocating for, funding the CDFI
    Fund at the level that is needed so then the money can trickle
    out to us and support our administrative costs to provide the
    services that are needed within our communities. You know, it
    is all a part of the system.
        Senator Rounds. I am going to--no, that is OK. And I know I
    am going to run out of time, but I want to get to one more
    question for sure. Private companies, including larger banks,
    are partnering with CDFIs across the country to make a social
    impact on distressed communities or communities that have got,
    you know, first-generation borrowers. Ms. Vogel, could you
    discuss how larger, private financial institutions, like Wells
    Fargo in South Dakota, are partnering with Native CDFIs, like
    yours, to increase access to capital?
        Ms. Vogel. Yes. That was also mentioned in John's testimony
    of saying we leverage. Every dollar of Federal investment is
    leveraged, you know, at least 12 times with different
    investments. So we are going after different pots of funding
    through corporate investments like Wells Fargo to build back,
    you know, the business economies and community economies that
    we are operating within.
        Senator Rounds. Great. So you have a partner there, and
    this is an opportunity to perhaps get more of the private
    lenders actively involved where they literally do not find a
    path forward right now.
        Ms. Vogel. Right. And foundations. We have an historic lack
    of investment in philanthropy in the rural Native regions, and
    so we need philanthropy and corporations to step up.
        Senator Rounds. Thank you.
        Thank you, Madam Chair. And once again, thanks for putting
    together this particular Committee hearing today. I think this
    is really important and this is one area where we absolutely
    can make a difference. And this is bipartisan in nature, and I
    think, Chairwoman Smith, I really do appreciate your leadership
    on this and your interest in finding a path forward that really
    would make a difference in a lot of our rural areas.
        Chair Smith. Thank you so much, Senator Rounds. That is
    great.
        Our next--I will now turn to Senator Reed.
        Senator Reed. Well, thank you very much, Madam Chair and
    Senator Rounds also, to your leadership on this issue. It is
    vitally important and something that touches everywhere.
        Ms. Vogel, there are so many people that are unbanked or
    underbanked, and they are at the mercy many times of payday
    lenders. Can you share your experience with providing
    sustainable and affordable small-dollar loans to members of
    your community?
        Ms. Vogel. Yes, I can. Thank you, Senator. You know, Four
    Bands has been providing a credit builder loan at 11 percent
    interest for some time now, and we chose to have a lower
    interest rate to keep it affordable to the family. But we were
    involved in a State initiative to cap the interest rate in the
    State of South Dakota at 36 percent, which was successfully
    passed. And since then we have not seen payday lenders show up
    within the credit histories of our clients that come through,
    and they have successfully been able to access other products
    to meet that short-term cash need within the household. And it
    has helped us to have that capped interest rate and to not hurt
    the families.
        Senator Reed. Well, and it also indicates that you seem to
    be able to function and survive and prosper as well as
    commercial banks in the State with the 36 percent interest cap.
    Is that accurate?
        Ms. Vogel. Yes, it is, and it is a business decision. It is
    just like any other business decision. If you have a loss
    leader, which the credit builder product does not necessarily
    bring us the best income, but you have other products that can
    offset the cost for that administrative expense to offer the
    important product to the community.
        Senator Reed. As you know, under the Military Lending Act,
    which I was actively involved with, we established 36 percent
    interest on loans to servicemembers, and we have legislation
    now which would extend that to everyone. What impact would that
    have nationwide? I presume from your experience in South
    Dakota--it is very progressive, South Dakota--that it would not
    have an adverse impact.
        Ms. Vogel. I do not think it would have an adverse impact.
    I believe in American innovation, and I think that if you cap
    the interest rate it would keep products safe and affordable
    for the families that are the most vulnerable and there would
    be innovative products that would be released onto the market
    that could fit the need and, you know, fill the gap that was
    left, a void there.
        Senator Reed. Thank you very much, and thank you for your
    work, indeed, all of you for your great work.
        Mr. Holdsclaw, one of the impressions I had about the first
    round of PPP is that the big banks got there first, grabbed the
    money for their big clients, and small business men and women,
    particularly minority communities, found nothing. They were--in
    fact, I got calls, as I am sure my colleagues did, from many
    small businesses, restaurants, et cetera, who had had
    relationships with these banks for years, could not get
    anything out of them. And that is why, I think one of the
    reasons, the second time around we made sure CDFIs had a role
    in distributing the money. Can you talk about that?
        I think again you made a decisive impact on getting money
    to the rural areas where it is needed, to small business
    people. And leaving it to the big folks, we have not seen that.
    Can you comment, please?
        Mr. Holdsclaw. I sure can, Senator. Thank you for the
    question. True, there was a lot of disparity as related to the
    larger banks in the first tranche, and the Coalition took the
    position, as well as other trade associations across the
    industry, to give a pot of money for CDFIs.
        And I think what you saw was, as I mentioned in my
    testimony, those loan sizes went down way below the average.
    But also, too, you saw more Black and Brown borrowers. I know,
    for example, Self-Help Credit Union based in North Carolina, 63
    percent of all of their PPP loans went to businesses of color,
    owned by people of color.
        And so again, I think it was effective to give as an
    alternative to those larger banks. Not knocking banks. I do
    work for a bank. But that said, to give them that alternative
    to be able to access the PPP program, especially in those
    communities that were hardest hit, that were Black and Brown.
    So I am happy that we were able to advocate on that behalf, and
    I am happy that CDFIs were able to step up during that crucial
    time to support those businesses that necessarily did not get
    that in the first tranche.
        Senator Reed. Well, I think the lesson is that if we are
    doing support or assistance to small business that CDFI has to
    be a big part of it, that just turning the keys over to large
    institutions will not get the money to where it should be.
        Mr. Holdsclaw. I concur, Senator.
        Senator Reed. Again, thank you, Madam Chairwoman, and thank
    you, Ranking Member.
        Mr. Holdsclaw. Thank you.
        Chair Smith. Thank you, Senator Reed.
        We will now turn to Senator Daines.
        Senator Daines. Chairwoman Smith, thank you. I am excited
    for this Subcommittee hearing actually because the CDFIs have
    played a very big role in my home State of Montana. They
    continue to play a really vital role in supporting a lot of our
    underserved communities across our State. In fact, if you look
    at the numbers in Montana, CDFIs have invested more than $218
    million. If we look, that spans over about 4,000 loans. And
    CDFIs in my home State, like MoFi, which operate primarily in
    Montana, in Idaho, in Wyoming, they have got a really strong
    track record of boosting economic growth and, importantly,
    creating great jobs.
        I am particularly passionate about the New Markets Tax
    Credit, which provides tax credits for community development
    entities to make investments in our lower-income communities.
    In fact, we can point to a new YWCA in Missoula, which I
    happened to tour back in August of 2020. We have a new wellness
    center in the Fort Peck Indian Reservation.
        So consequently, I have really seen firsthand that the New
    Markets Tax Credit, it works. And I strongly support making it
    permanent and would reach out to my colleagues on both sides to
    suggest we work together to find permanence.
        Certainly one of the frustrating parts of Washington, DC,
    is the temporary nature of policies that are good policies. Let
    us make this one permanent, work together to that outcome.
        We recently, in Congress, extended the NMTC through 2025,
    which will provide much-needed certainty for all stakeholders
    who utilize and rely on this incentive. Congress has extended
    it so many times. At this point, I think we should agree, when
    it gets extended so many times, let us just make the temporary
    nature go away entirely and make it permanent.
        And so I have a question for the whole panel. The question
    is this: In your mind, what would be some of the benefits of
    making the credit permanent, and do you think that would make
    the credit even more effective? And, Mr. Holdsclaw, why don't
    you start off with your response to that?
        Mr. Holdsclaw. Thank you, Senator. You know, like you
    stated, in the State of Montana and across the country, the New
    Markets Tax Credit Program has proven to be vitally successful,
    and I think--and I could not concur with you more in regards to
    making it permanent because you see every year when people or
    CDFIs apply, or CDEs apply, for the program that it is already
    overprescribed. So the need is there, but again, I think it is
    a perfect example of a private public partnership to where
    those outside dollars can be combined with the expertise of the
    Community Development Entity to impact communities.
        And so, definitely strongly agree in making it permanent
    and increasing the allocation authority of the New Markets Tax
    Credit Program. The New Markets Tax Credit Coalition is doing
    some amazing work advocating on that behalf and one that I
    definitely appreciate your support.
        I want to defer to some of the other panelists if they have
    any response.
        Senator Daines. Mr. Holdsclaw, thank you.
        Mr. Altman or Ms. Vogel? Why don't I start with Ms. Vogel?
    Do you have a thought on that?
        Ms. Vogel. I will give my time to Mr. Altman. He has got
    the experience with New Markets Tax Credits.
        Senator Daines. Great. Mr. Altman.
        Mr. Altman. Thank you. Yes, I actually served as the first
    President of the New Markets Coalition back in the beginning of
    the program in 2000, and so we have been very, very involved
    over a long period of time to really make this program
    successful. It has never been plagued with scandal. It has been
    incredibly effective, and it should be made permanent. So I
    appreciate your statements there, Senator.
        Senator Daines. Mr. Altman, thank you.
        Mr. Altman. A couple of other points I would make----
        Senator Daines. Please.
        Mr. Altman. ----is that it should be indexed for inflation
    as part of its permanency. It should be made permanent now,
    when the opportunity is here. I know there has been some
    discussion about waiting until 2025, when this extension rolls
    up, but the need is now. It should be made permanent, and it
    should be widely available to CDEs.
        Senator Daines. Well, thank you.
        Ms. Vogel, I know you have spent a lot of time working in
    Indian Country. Anything, any thoughts you might want to share
    on what has worked and what has not worked to increase CDFI
    investment in Indian Country?
        Ms. Vogel. Well, just quickly on the New Markets Tax
    Credits, we do not have many investments into Indian Country
    with New Markets Tax Credits. A lot of us have tried to
    innovate and create different models to address that and access
    the New Markets Tax Credits, to get an allocation, and it has
    not worked successfully.
        So I would really encourage us all to take a deep look at
    what are the systemic issues going on with the program that are
    inhibiting investment into Indian Country, and that could take
    a team at the CDFI Fund. So I think there is just some eyes
    that need to be put on it and, you know, the way that we
    perceive things and taking a look at things. So we need to be
    involved in that as an advisory panel and taking a look at
    things.
        Senator Daines. Ms. Vogel, thank you. It is a very helpful
    comment. Appreciate the observation.
        Chairwoman Smith, thank you. I am out of time.
        Chair Smith. Thank you so much, Senator Daines.
        Now we will turn to Senator Menendez.
        Senator Menendez. Thank you, Madam Chair, to you and the
    Ranking Member for holding this hearing. Throughout the
    pandemic, we saw that minority and women-owned small businesses
    were hit particularly hard. At the same time, we saw the vast
    majority of funding under the Paycheck Protection Program go
    not to these businesses that were most affected but to
    predominantly White-owned businesses with preexisting
    relationships with banks. So I would like to ask Mr. Altman and
    Ms. Vogel, how did you CDFIs work to prioritize lending to the
    hardest hit small businesses, particularly minority and women-
    owned businesses?
        Mr. Altman. I will start. This program really brought out
    the best in CDFIs. We were able to network with a number of
    CDFIs that did not have either business lending capacity or
    were not yet eligible in the first round. CRF, because we had a
    7(a) license, we were able to mount the PPP program from day
    one, and we linked together with organizations around the
    country that referred their borrowers to us so that we could
    make those loans. And we worked together. They would do a lot
    of the prep work with the borrowers, and then we did the final
    lending.
        And that led to $700 million in PPP loans originated by CRF
    through a network of 47 organizations, including Four Bands,
    and the median loan size of those business loans was $21,000.
    So we really were getting to the mom-and-pop companies, the
    very small businesses. And two-thirds of the loans that we
    made, where we had information on ethnic or racial
    characteristics, were made to businesses owned by people of
    color and/or women. So that is exactly, I think, the way that
    the CDFI industry was able to partner with others.
        And I should say that on the banking side, because the PPP
    program was so important, we were able to raise hundreds of
    millions of dollars in credit facilities from large banks to
    fund that PPP activity that we did in concert with many other
    organizations.
        Senator Menendez. Ms. Vogel.
        Ms. Vogel. Do you mind if I----
        Senator Menendez. No. Go right ahead.
        Ms. Vogel. OK. Thank you for that question. And I think
    that, you know, our experience was at first a lot of panic when
    we found out about the PPP program and the inability for us to
    access a lot of the funds for our borrowers. We had borrowers
    bringing all of the Federal programs--the EIDL, PPP--to us and
    saying, how do I get access to this? Our first instinct was to
    refer to financial institutions, and many of them were not
    serving borrowers that were outside of their portfolios at the
    beginning in these small banks.
        And so we had to, you know, scramble and find a partner.
    And thank goodness CRF had created this tool. And so we looked
    for partners alongside that were also giving us a little bit of
    a kickback because we spent a lot of time, administrative time,
    packaging the loans, working with the borrowers, getting their,
    you know, balance sheets straight to send off to the next
    level, and CRF was generous enough to offer something. Many of
    the other financial institutions just wanted us to send them
    borrowers without any sort of support back to the CDFI, which
    was very frustrating. So we are thankful for CRF and what they
    were able to do, and there were a few others out there that did
    the same.
        We were on the ground. We were trying to get the resources
    into the hands of the community members that needed it the most
    and successfully did it through partnerships like CRF.
        Senator Menendez. Great. Well, to support the important
    work CDFIs do in New Jersey and, for that fact, around the
    country, I led the effort to establish the CDFI Bond Guarantee
    Program over 10 years ago. That program allows CDFIs to access
    long-term, low-cost capital to jumpstart economic growth and
    community development, all at no cost to the taxpayers.
        Mr. Holdsclaw, you noted in your testimony that the program
    has supported $1.3 billion in affordable financing for
    community facilities, nonprofits, commercial real estate, other
    community development projects. Could you explain to the
    Committee in more detail how the program helps these projects
    actually come to life?
        Mr. Holdsclaw. Thank you, Senator, and thank you for your
    support of that 10 years ago. I think that, you know, the Bond
    Guarantee Program has provided again an opportunity for the
    folks who have received it always in the desire and access to
    garner more capital. So I think that it became a game changer
    from that standpoint of while we do want to encourage folks, or
    encourage the limits to come down to be able to expand it to
    more individuals, I just think that the way the program is
    structured just allowed more CDFIs, or the ones who have been
    able to access the program, just another avenue or another
    vehicle on top of the FA&TA programs that were already out
    there and already existed. So again, making that limit go down
    a little lower, to $25 million as opposed to $100 million, will
    only expand the net even more for other folks to be able to
    access that program.
        Senator Menendez. Madam Chair, I am out of time. Just one
    last question, would it be fair to say that if the CDFI bond
    program had not existed that some of these projects would not
    have taken off from the ground?
        Mr. Holdsclaw. Very fair to say. Very fair.
        Senator Menendez. All right. Thank you, Madam Chair. I have
    other questions. I will submit them for the record.
        Chair Smith. Thank you so much, Senator Menendez.
        Next up for questioning, unless Senator Tester is with us,
    which I think he is not, we will go to Senator Cortez Masto
    from Nevada.
        Senator Cortez Masto. Thank you. Thank you, Madam Chair.
    Thank you to both you and the Ranking Member for having this
    hearing. It is so important. I really appreciate the comments
    from the panel members today and all the good work that you are
    doing.
        But let me start with Mr. Holdsclaw and Mr. Altman. Let me
    talk a little bit about the Housing and Economic Recovery Act
    of 2008 and get your thoughts here. So we all know Congress
    allowed nondepository Community Development Financial
    Institutions to become members of the Federal Home Loan Banks.
    Mr. Holdsclaw, what has been the impact of providing a
    secondary market for CDFI loans through the Federal Home Loan
    Banks?
        Mr. Holdsclaw. Thank you, Senator. A great question. I
    think it is obvious to see that the number of CDFIs who have
    joined the Federal Home Loan Banks system has increased. When
    you look in 2011, you had 8. You look at 2021, you now have 67.
        So as we all know, that system exists to support housing
    opportunities and community development, much like CDFIs do as
    well. And so through this membership, as we talked about
    throughout this testimony, CDFIs are always on the lookout for
    affordable sources of capital, and I think that the Federal
    Home Loan Banks system has given our members or our industry
    the low cost, flexible, on-demand capital that they need
    through these advances. And I think that CDFIs are able to take
    this capital and use it as a funding source for mortgage
    products, for very low and low to moderate-income communities.
    And so I think that as the banks offer the letters of credit to
    CDFIs to help secure these additional obligations I think you
    are just going to see the numbers rise as the need or fight for
    capital is going to become more apparent as we move on.
        So with the CDFIs becoming the shareholders of the bank,
    they can also earn high yielding investments and can
    participate in all the various programs that the Federal Home
    Loan Banks system provides, like for example, the Federal Home
    Loan--the Federal Bank of New York has grant programs that
    support lending for disaster relief, affordable housing, and
    homebuyers. So I think, Senator, as time goes on, you are only
    going to see those numbers increase from 67 on up.
        Senator Cortez Masto. Yeah, no. I think that is great and
    that is a positive, and I think it is wonderful to hear the
    benefits from the change in the law. But I also know that,
    unfortunately, the law did not permit Community Development
    Financial Institutions to join as community financial
    institutions, and that has also had an impact.
        And so, Mr. Altman, I appreciate the Community Reinvestment
    Fund's support of a bill that I have introduced to allow CDFIs
    to pledge small business, small agriculture, and community
    development loans to receive advances from the Federal Home
    Loan Banks. So, Mr. Altman, how would the opportunity to pledge
    non- housing loans to the Federal Home Loan Banks affect your
    and other Community Development Financial Institutions?
        Mr. Altman. It would be very, very helpful. We have looked
    over time since this opportunity to become a member of the
    Federal Home Loan Banks, and we have decided that we could not
    because of the collateral requirements, just not having the
    right collateral to meet the standards of the bank or having
    the right kind of collateral to get a significant advance. So
    we have gone elsewhere for liquidity.
        Now that said, we have been supported outside of membership
    by investments made by the Federal Home Loan Bank of Chicago,
    and I know other Federal Home Loan Banks have looked at other
    ways to support CDFIs. But CDFI membership, I think, would be
    greatly enhanced by the bill that you have introduced.
        Senator Cortez Masto. Yeah, no. I appreciate that because I
    think my understanding is just in 2008 was a drafting error
    more than any opposition to allowing this to occur, and so I
    would encourage my colleagues to support my proposal to permit
    nondepository CDFIs to pledge the same collateral as other
    community financial institutions.
        And then to the Chairwoman, I would request permission to
    place into the record the 2015 GAO report, Federal Home Loan
    Banks: Collateral Requirements Discourage Some Community
    Development Financial Institutions from Seeking Membership.
        Chair Smith. Without objection, so ordered.
        Senator Cortez Masto. Thank you. And I know I only have so
    much time left, but here is the other thing that I am going to
    ask the panel members to help with. I think we all do--and this
    is a great opportunity here to see bipartisan work happening.
    We all support greater investments in Community Development
    Financial Institutions.
        Unfortunately, I am aware that these entities exist
    unevenly across the Nation. There is only one Treasury
    certified CDFI in Nevada. In the past 30 years, we have had
    only 8 awards to a Nevada-based CDFI. So my question, Mr.
    Holdsclaw, is: How can the CDFI Coalition assist the
    development of CDFIs in underserved States like Nevada, and
    what should we be considering? How do we bring more of those
    resources into a community that is underserved?
        Mr. Holdsclaw. Senator, I would say in the time I have
    left, obviously, advocate for more technical assistance dollars
    for emerging CDFIs in Nevada. Also, work to increase the small
    and emerging CDFI program or SECA. Then last, but not least,
    you know, there are webinars; there are other things that
    emerging CDFIs can do. And I know we as a coalition have a lot
    of western-based, rural CDFI members, and I am more than happy
    to talk to your staff, to bring folks together, and put you all
    in touch with them.
        Senator Cortez Masto. Thank you. And I am looking forward
    to that because I know about the technical assistance funds.
    They are just not reaching Nevada. So if there is a way that we
    can get your support and innovation ideas about how we do this
    and grow this in Nevada, I would be open to that.
        Thank you, everyone.
        Chair Smith. Thank you very much.
        Senator Van Hollen.
        Senator Van Hollen. Thank you, Madam Chair, and I want to
    thank you and Senator Rounds for bringing us together on this
    important hearing today. And to all the panelists, thank you
    for your input.
        Also, good to see my friend and colleague, Senator Warner,
    and it was good to work with him and others in providing that
    big bump-up to CDFIs as part of the bill we passed last
    December, and I do have a couple questions regarding the status
    of the rollout there.
        But first, I also serve on the appropriations committee,
    and I chair the subcommittee that oversees the appropriations
    through the Department of Treasury to CDFIs. And we have been
    working on a bipartisan basis to try to increase funding for
    CDFIs given the critical role they play in economic development
    at the community level. And, we have unveiled a proposed budget
    for this fiscal year that we are now in, for fiscal year 2022,
    that would increase the CDFI allocation by $90 million, take it
    to $360 million from the current amount of $270 million.
        So my first question to Mr. Holdsclaw is: Do you agree that
    CDFIs have the capacity to absorb this additional funding, and
    what would be consequences if we are not able to provide the
    additional funding, if we simply straight-line CDFI funding at
    current levels?
        Mr. Holdsclaw. Thank you, Senator. I do think--I think if
    COVID has proven nothing else in what CDFIs were able to do,
    that CDFIs can be the first line of financial defense for
    underserved communities across the country. So I do feel like--
    and thank you for your support of the appropriations levels--
    that CDFIs would be able to absorb that increased amount. I
    think that the performance during COVID has shown that.
        In regards to the second part of your question, obviously,
    all CDFIs worry and are concerned about access to capital and
    loan production and whatnot. I just feel like the need is so
    great that I would have a hard time finding what would be
    necessarily detrimental to those types of funds.
        Also, too, Senator, I do not know if you were here during
    my testimony, but I also talked about not only that money going
    to the CDFIs but also the Fund being able to have enough
    administrative support internally to deal with the demand of
    surge of applications for certified CDFIs going right now as
    well as the awarding of grants and allocation authority from
    last year. They are very short-staffed. But I think there is
    also a play there as well. CDFIs can get a lot of that money
    from an FA&TA standpoint. I think there is also, too, a desire
    from the Coalition's standpoint for us to support the CDFI Fund
    from an administrative standpoint.
        Senator Van Hollen. No, I appreciate that, and I think that
    is one of the things we would like to do and work with you and
    your members to make sure that we do that. We want to--
    obviously, we have got to support the folks at Treasury who are
    administering the program and the folks in the field.
        So I referred to the December bill, the two big programs
    that are still in the process of implementation. There is the
    Emergency Capital Investment Program and the Emergency Support
    and Minority Lending Program. Based on the feedback you are
    hearing, are there any concerns with the rollout that we should
    be aware of at this particular point, or do things seem to be
    going smoothly, putting aside the issue with the fact that non
    depository institutions cannot participate? And I agree with my
    colleagues who would like to remedy that situation.
        Mr. Holdsclaw. Right. Well, from our membership, Senator,
    we are not hearing anything negative in regards to the rapid
    response.
        And then obviously, a couple weeks ago, the ECIP program,
    you know, when I would check in with some of the folks who were
    able to garner some of that money, I would hear things like,
    you know, transformational game changer again because--
    especially from a lot of the minority deposit institutions that
    I reached out to. I had a conversation with the second oldest
    CEO of the second oldest Black bank in the country in Durham,
    North Carolina, and he just said, you know, it is unbelievable
    what that is going to allow him to be able to do.
        Senator Van Hollen. Great. No, I think this is something
    that, you know, we are all proud of the funds that were made
    available and look forward to working with you.
        My final question, Mr. Altman, relates to providing
    opportunity for more CDFIs to participate as lenders under the
    SBA programs. This was an issue that, you know, really came to
    a head I think during this pandemic in the PPP programs. We saw
    that CDFIs could be very important conduits for those funds,
    but we do not have enough CDFIs who are certified with SBA
    programs. What do you think we can and should be doing in that
    regard?
        Mr. Altman. Well, two things. I think more CDFIs ought to
    have access to the license that we have. There are only 14 of
    these national nonbank SBA 7(a) licenses, and only 3 CDFIs hold
    those at this point. It does allow us to be a national lender,
    which is important.
        Then the SBA also has been operating a pilot program called
    Community Advantage that allows CDFIs to make SBA-guaranteed
    loans up to $250,000. That program should be made permanent,
    and I believe there has been legislation introduced to make it
    permanent because it is a vital tool and many of the CDFIs who
    were part of that pilot program were able to access the PPP
    program very effectively.
        And I think there is another aspect to all this, and that
    is the role of technology in supporting the lending that CDFIs
    do. In the SBA world, SBA loan origination is a complicated
    process. And CRF has developed a platform called SPARK that
    CDFIs are now using to originate their SBA loans, but it is a
    very, very useful and forward-looking platform that--I think it
    is important for the CDFI world to be able to access technology
    platforms as banking is doing right now, and so that should be
    part of the SBA discussion as well.
        Senator Van Hollen. Thank you, and thank you, Madam Chair.
        Chair Smith. Thank you so much, Senator Van Hollen. I
    certainly so much appreciate your leadership on the
    appropriations subcommittee.
        And, Senator Warner, welcome to the Subcommittee. It is
    great to have you given your deep interest and commitment to
    supporting CDFIs. So thank you for being with us.
        Senator Warner. Well, thank you, Chair Smith, and I really
    appreciate the fact that you and Senator Rounds are holding
    this hearing and thank the panel. I think CDFIs--I think we
    have all--at least I, speaking personally, have come to much
    more fully understand the incredibly valuable role they play in
    our financial system and, frankly, the opportunity to expand
    that role.
        And I want to thank Senator Van Hollen for his work as an
    appropriator to make sure that we take this moment and continue
    to expand it. I am very proud of the fact that so many of us on
    this Committee, in a bipartisan way, work so hard to get that
    $12 billion, you know, that came out of the Jobs and
    Neighborhood Investment Act into the last COVID package.
        And I think, as Senator Van Hollen pointed out in his line
    of questioning, the rollout has been pretty darn good. You
    know, the grants went out the first round. The second round
    will come out later.
        The fact that we had close to--what was it? Almost $13
    billion of requests on the ECIP program--and so we were way
    over subscribed on that item--shows, I think, the capacity of
    this group of institutions obviously serving underserved
    communities.
        You know, I think we need to mark as well what Senator
    Cortez Masto talked about, how we expand this, the network of
    CDFIs in a much, much greater way.
        So I want to hit two or three points pretty quickly. First,
    I am going to start with Mr. Altman. I am really interested in
    this whole idea of can we take CDFI portfolios and securitize
    them. I think that is the next big step we need to move to. I
    have had conversations with the Fed.
        I know, Mr. Altman, that CRF, your entity, has done some
    securitizations in the past. I think, you know, what else
    should we able to do? What tools--do you need additional tools
    from Congress? Do we need to continue to nudge the Fed? How can
    we make, either on an individual basis or on an ability to
    aggregate, pools of loans from a variety of CDFIs into an
    easier securitization process?
        Mr. Altman. Thank you for that question. We actually did
    pioneer the use of securitization as a tool early on, and we
    have securitized through 21 different issues, securitized
    mostly small business and nonprofit loans but also close to
    $100 million in multifamily affordable housing loans. And those
    securities, at least the latter ones that we did, were large
    enough to be rated by Standard & Poor's, something that people
    said will never happen. And this was all done without any
    particular government support other than maintaining compliance
    with tax laws and so forth.
        After the crash, the market for securities just collapsed,
    and we had to move in a different direction. And then the
    accounting rules changed and required--even though
    securitizations are bankruptcy-remote, usually done through
    special purpose vehicles, it required the special purpose
    vehicles to come back onto the balance sheets of the issuer. So
    that made it virtually impossible for an organization like CRF
    to continue to securitize without having a much larger balance
    sheet. And so we moved to other tools because the balance sheet
    just was not there to support it from an accounting
    perspective, and I think that is one of the issues that needs
    to be examined.
        The second issue is securitization works the best when the
    assets that are being securitized are standardized. And CDFIs,
    in general--and we certainly came to the market recognizing
    this. CDFIs, in general, do their own thing, and the ability to
    create standardized products that can be fed into a security is
    still a challenge. But once we have standardized products--and
    I will use the PPP product as a prime example. That was a
    standardized product across the entire industry, and it became
    very liquid. And so CDFIs need to have the ability, if they
    want to securitize, to create products that are the same across
    different CDFIs, not that all their products are the same, but
    that the ones that they want to securitize can be put into
    facilities that are of like benefit.
        So those would be my basic comments.
        Senator Warner. We would like to keep working with you on
    this because we have had conversations with both the Fed on
    potentially creating SPVs and with private capital. And that is
    where I want to move my last question to, which is: How do we
    better leverage private capital?
        And I would like to hear from Mr. Holdsclaw as well on
    this, and the balance of the panel, because you know, private--
    there is a lot of talk from private capital about wanting to
    get in. You know, I know some large entities, like Google, have
    been pretty creative in using their balance sheet. But I think
    that can help us on securitization. And I also want to make
    sure that--some of the CDFIs and MDIs, in particular, that are
    most in need could not meet all the requirements even to get
    the ECIP program. So is there also a way where some of this
    private capital that might be more at risk can help smaller and
    other entities?
        So I know my time is up, Madam Chair, but if I could have
    the panel answer on how we can better leverage private capital,
    I would love to hear from everybody, starting with Mr.
    Holdsclaw.
        Mr. Holdsclaw. Thank you, Senator, and thank you for your
    past support for CDFIs. I think that, you know, in the wake of
    the racial and social reckoning that we had last year coming
    from George Floyd, I think you saw this influx of private
    corporations coming together and making deposits into MDIs and
    others. I think that--as well as foundations.
        I think that I would say one way to increase it is to look
    at the smaller and emerging CDFIs again, to try to get some of
    those, like you said, those MDIs who are unable to do ECIP, to
    be able to get and foster those relationships between them as
    well because, again, we have this gap where some folks were
    unable to capitalize off of it and some were not--some were,
    and some were not.
        And so I think that just the continuing education and
    bringing folks together outside of some type of racial and
    social reckoning, to show that CDFIs are here. They are--you
    know, they are first responders from a financial standpoint.
    And educating other folks about the smaller and emerging ones,
    I think, will level the playing field from a private investment
    standpoint.
        Senator Warner. Others? I know my time is up, but I do not
    want to--I am not a Subcommittee Member. I do not want to
    overdo.
        I will go back to the Chair, but Madam Chair, I just--one
    of the things I hope the Subcommittee would look at as well--
    you know, we know that Lael Brainard in her previous role was
    leading the efforts on CRA reform. I would love to get maybe
    for the record from the panel how we can use CRA reform to also
    help with CDFIs. And thank you and Senator Rounds so much for
    holding this hearing.
        Chair Smith. Thank you so much, Senator Warner, and I think
    those are all great, great issues to follow up on and look
    forward to continuing to work with you on this.
        Senator Warner. Thank you.
        Chair Smith. So I believe--unless I am mistaken and not
    seeing anybody, I believe that everybody who is interested has
    gone through their first round of questions. So let me turn to
    Senator Rounds.
        Senator Rounds, would you like to ask a second round of
    questions?
        Senator Rounds. At this time, I think I have had my
    questions answered, and it has actually been a very good
    Subcommittee hearing. I think we have had some very good
    participation by Members, not just of the Subcommittee, but
    other Members of the Banking Committee as well. I think this
    has been a good, informational meeting, and I think with regard
    to some new ideas and so forth it has been a very beneficial
    meeting. And I thank you, Madam Chair, and I would defer at
    this time.
        Chair Smith. Well, thank you. Thank you very much.
        I actually do have just a couple of follow-ups that I would
    like to ask the panel before we close, and so let me just get
    to those quickly. The first is this: You know, when the
    pandemic struck in 2020, a lot of State legislatures, including
    my State legislature, developed some economic relief packages
    for small businesses, and they turned to CDFIs. CDFIs stepped
    up to help in distributing these funds so that they got to
    traditionally underserved communities. And now I have heard
    that some of these CDFIs in Minnesota are facing challenges
    maintaining or getting certification because those emergency
    loans were outside of the narrow definition of their target
    market.
        And let me just ask--so let me just finish by saying the
    CDFI Fund at the Department of Treasury, which sets these
    rules, has provided some target market exemptions for PPP loans
    but has not done the same for these State-funded pandemic
    loans. Mr. Altman, I just want to turn to you about this. I am
    wondering if you have heard about this and if you have any
    recommendations or thoughts that we can take back to Treasury.
        Mr. Altman. Yes. Yes, it is a challenge. We are a national
    organization. There are several different ways the CDFI Fund
    permits target markets. Low-income targeted populations is one
    where you literally have to show that low income people
    directly were benefiting or by using proxies like being a
    resident of affordable multifamily housing and others.
        There is another one called Investment Areas, and that is a
    geography that has been established by the CDFI Fund based on
    certain characteristics of census tracts. Investment Areas tend
    to be limited and are held accountable by advisory committees.
    So for an organization that is national, like CRF is and
    several other CDFIs, it is impossible to have 50 advisory
    committees to be able to operate Investment Areas nationally.
    So we really advocate for a reform there to enable national
    Investment Areas under that target market test.
        And then there is other targeted markets which tend to be
    specific ethnic or racial groups that are target markets for
    CDFIs, and oftentimes the accountability mechanism there is
    also limiting. So accountability is very important. Oftentimes
    CDFIs use their boards as an accountability mechanism. That
    needs to be streamlined, I think.
        And then finally, this issue that you are raising, Senator,
    of CDFIs being asked to take up the sort of frontline effort,
    with them being restricted in where or to whom they can lend,
    is an issue. And I think during this period of recovery, after
    the pandemic, the CDFI Fund needs to provide some relief to
    CDFIs who might be lending for issue-related purposes but not
    necessarily inside of their target markets.
        Chair Smith. Mr. Holdsclaw, would you like to add to that?
    I am sure--I wonder if you have heard about this as well.
        Mr. Holdsclaw. I have heard about it, Senator, and again,
    probably if it is not corrected you are going to start to see
    more and more of this because you are having more States now
    that are developing programs that are CDFI-specific.
        I mean, one of the things that we have thought about at the
    Coalition is to try to get everybody on the same page, is to
    have a stakeholder meeting to renew the discussion on the
    proposed rule and also note that there are some, again, as
    Frank stated, some complications as it relates to the targeted
    market certification. And so we would like to be able to sit
    down in this stakeholder meeting and hash some of these things
    out and help the Fund as they start to deal with more and more
    of these issues.
        Chair Smith. Well, thank you. I look forward to working
    with you and everyone on that. I think this is a--this is
    something that we should be able to find a solution to.
        Last question I just want to highlight before I close is
    several of you in your testimony mentioned the role that CDFIs
    can help in expanding childcare businesses. This is such an
    important issue at a moment where we are seeing workforce
    shortages and we are seeing deep challenges in the childcare
    sector caused by the pandemic, really challenges that existed
    way before the pandemic. This seems to me to be a really
    important opportunity.
        So, Mr. Holdsclaw, let me just stay with you. Is there
    anything more that you would like to say just to highlight the
    important role that CDFIs can play in addressing this challenge
    of childcare shortages and childcare deserts?
        Mr. Holdsclaw. I would, Chairwoman, and you got me in my
    sweet spot as a proud Head Start child and having the
    opportunity to have visited parents in Community Action Head
    Start in Minnesota. I think that in my mind the childcare piece
    of what a lot of CDFIs do across the country is probably one of
    the most--least known about.
        You have got organizations like CEI in Maine that have a
    40-year track record of working with childcare facilities from
    a finance standpoint. But there is also a development services
    point here as well because CDFIs also have a mission in
    providing those development services, which is more or less
    them helping build the capacity for a childcare center that is
    trying to open early care and education.
        So I think that they play a great role, but it is one that
    we probably need to do a better job of highlighting. I would be
    happy to send over to the office any information that we have
    in regards to some of the programs that our members have from a
    childcare center standpoint, finance facility.
        Chair Smith. Thank you so much.
        And then, Ms. Vogel, I will close with you because I know
    that this is an issue that you are deeply committed and
    passionate about. Congratulations, by the way, on being a
    finalist for the Build Back Better Regional Challenge in this
    area. So would you like to say anything more about this?
        Ms. Vogel. Yeah. I think daycares are, you know, such an
    important and vital part of any economy, including the rural
    economies, and they are a hard business model to fund in the
    traditional way. And so CDFIs can step up in a role and create
    unique financial products to match the daycare model, you know,
    because it is a hybrid of almost a social program. And it is
    underfunded federally, so it definitely needs more Federal
    support for daycare centers across the Nation.
        But as far as what CDFIs can do, we can--if we can get
    access to more flexible capital to offer more patient capital,
    you know, lower interest rates, for these types of models, it
    will really help. And then as developers within our community,
    Four Banks is looking at, you know, building the buildings and
    then helping with the operations costs to offset the cost to
    the actual family member to make it more affordable to our
    community through the Build Back Better Regional Competition,
    hopefully. So thank you for this opportunity.
        Chair Smith. Thank you so much. Well, you are exactly
    right. It is a question of facilities and upgrading and
    improving facilities that we need to support more, as well as
    making the business model for childcare actually function for
    parents and for providers, where we have situations where, you
    know, providers are making, you know, not even enough to
    support their families at the same time that parents are priced
    out of childcare because it is so expensive. So there is many
    opportunities here.
        I want to just thank all of our panelists for a terrific
    discussion today about the opportunities that we have to
    support Community Development Financial Institutions.
        Senator Rounds, thank you so much again for the opportunity
    to work together. I think that we have heard a lot today about
    areas of bipartisan opportunity to come together, including the
    two bills that you and I are leading on, the Bond Guarantee
    Program and also the Section 502 Mortgage Lending Program, but
    other areas where we can find bipartisan agreement, including
    New Markets Tax Credits, and I hope also providing increased
    funding for CDFIs. So I look forward to continuing our work
    together on this.
        I want to thank everybody. Thanks to our witnesses for
    being here today and providing your testimony.
        And for Senators who wish to submit questions for the
    record, those questions are due 1 week from today, which will
    be Wednesday, January 12th.
        For our witnesses, you will have 45 days to respond to any
    questions for the record. Thank you again.
        And with that, our hearing is adjourned.
        [Whereupon, at 11:29 a.m., the hearing was adjourned.]
        [Prepared statements, responses to written questions, and
    additional material supplied for the record follow:]

                    PREPARED STATEMENT OF JOHN HOLDSCLAW, IV
                  President, CDFI Coalition, Washington, D.C.
                                January 5, 2022
        My name is John Holdsclaw, IV, President of the CDFI Coalition, and
    I am the Executive Vice President of Strategic Initiatives at the
    National Cooperative Bank, a leading financial institution dedicated to
    providing banking solutions to cooperatives, their members, and
    socially responsible organizations nationwide. Thank you for this
    opportunity to testify on the Community Development Financial
    Institutions Fund (CDFI) Fund and the success of CDFIs in delivering
    financial services to underserved low-income urban, rural, and tribal
    communities.
        About the CDFI Coalition The CDFI Coalition was formed in 1992 by a
    variety of nonprofit organizations and activists concerned about the
    persistent and pervasive lack of financing capital available in
    distressed urban neighborhoods and poor rural communities. Our
    Coalition is made up of more than 150 organizations--including loan
    funds, community development banks, community development corporations,
    venture funds, microlenders, Native American organizations, and credit
    unions--that are working to finance affordable housing, small
    businesses, and community facilities at the ground level.
    About the CDFI Fund
        The Community Development Financial Institutions (CDFI) Fund was
    established within the Department of Treasury in the Riegle Community
    Development and Regulatory Improvement Act (P.L. 103-325) of 1994. The
    purpose of the agency is to ``promote economic revitalization and
    community development through investment in and assistance to community
    development financial institutions, including enhancing the liquidity
    of community development financial institutions.''
        The CDFI Fund administers the following core programs, and each
    program awards funds annually through an independent and competitive
    application process, including the Financial Assistance (FA), Technical
    Assistance (TA) Awards, The Native American CDFI Assistance (NACA)
    Program, The Bank Enterprise Award (BEA) Program, New Markets Tax
    Credit (NMTC) Program, Capital Magnet Fund, the CDFI Bond Guarantee
    Program, Economic Mobility Corps, and Small Dollar Loan Program.
    The Challenges Facing Low-Income Communities and Populations
        Even before the pandemic, low-income communities and communities of
    color faced significant obstacles in accessing financial services,
    including mortgage, consumer, and business loans, financing for
    community facilities and affordable housing, and the patient, flexible
    capital needed to sustain a healthy economy. These are the communities
    CDFIs serve.
        One of the biggest challenges facing underserved communities and
    populations is the lack of existing assets. Indigenous people and
    people of color, in particular, have fewer assets to use to secure
    loans. For example, the median net worth of White families is nearly
    nine times greater than Black families, according to the Federal
    Reserve's 2019 Survey of Consumer Finances. Entrepreneurs of color are
    therefore less likely to self-finance a business or borrow funds from
    friends and family.
        With fewer resources to tap into, businesses in low-income
    communities tend to be smaller than businesses in more prosperous
    communities. The average business in a low-income community has 20
    percent fewer employees than businesses in other areas, according to a
    2017 report by the Small Business Administration.
        According to a working paper published in 2018 by the Richmond
    Federal Reserve, Black and Latino business owners are significantly
    more likely to be discouraged borrowers. \1\ Minority borrowers face
    more scrutiny and receive less assistance when applying for bank loans
    than their White urban counterparts.
    ---------------------------------------------------------------------------
         \1\ Financing Patterns and Credit Market Experiences: A Comparison
    by Race and Ethnicity for U.S. Employer Firms. Report by Alice Robb,
    Ph.D., for the Office of Advocacy, U.S. Small Business Administration,
    February, 2018.
    ---------------------------------------------------------------------------
        Small towns and farming communities also continue to be underserved
    by conventional lenders. The number of community banks in the United
    States has declined by an average of 300 per year over the past 30
    years, according to data from the Federal Deposit Insurance
    Corporation. During the Great Recession, when lending plummeted
    nationwide, in Appalachia, lending ``decreased to a greater extent,
    standing at 18 percent below national levels at the end of the
    recession . . . in the Region's economically distressed counties,
    lending was 56 percent below national levels. Further, growing
    disparities were found in lending to businesses with revenues of less
    than $1 million and in counties with limited access to non- credit card
    bank lending.'' \2\
    ---------------------------------------------------------------------------
         \2\ ``Access to Capital and Credit in Appalachia and the Impact of
    the Financial Crisis and Recession on Commercial Lending and Finance in
    the Region''. July 2013, Josh Silver and Archana Pradhan, National
    Community Reinvestment Coalition; and Spencer M. Cowan, Woodstock
    Institute.
    ---------------------------------------------------------------------------
        Residents of Indian Country also face significant challenges in
    securing commercial credit, including significantly longer distances
    from brick-and-mortar financial institutions and poor and limited
    internet for mobile or online banking. This is compounded by a lack of
    equity resources, collateral, and credit history; experiences and
    perceptions among Native entrepreneurs that commercial bank financing
    is difficult to secure; and a lack of diversity in funding sources. \3\
    According to an analysis of 2018 Census and Bureau of Labor data by the
    National Community Reinvestment Coalition, Native Communities
    experience the highest rates of unemployment (6.6 percent) and poverty
    (25.4 percent) among minority groups. \4\ Native CDFIs are often the
    only resources for financial products and services in tribal
    communities.
    ---------------------------------------------------------------------------
         \3\ Miriam Jorgensen and Randall K.Q. Akee. 2017. ``Access to
    Capital and Credit in Native Communities: A Data Review'', digital
    version. Tucson, AZ: Native Nations Institute.
         \4\ Dedrick Asante Muhammad, Rogelio Tec, and Kathy Ramirez,
    November 18, 2019. ``Racial Wealth Snapshot: American Indians/Native
    Americans''.
    ---------------------------------------------------------------------------
        A 2019 report by the Federal Reserve found that since the end of
    the last (great) recession, ``low-income neighborhoods have experienced
    larger declines in the number of banks and larger increases in the
    number of alternative financial services companies compared to higher-
    income areas.''
        The COVID-19 crisis has exacerbated the already difficult
    situation. According to an April 2020 report by the Department of
    Health and Human Services, \5\ residents of low-income communities are
    more likely to work in professions at high risk of COVID infection: as
    ``essential workers'' in public-facing retail or service sector jobs,
    as nurses, and as first responders. Excess deaths during the pandemic
    surged in low-income communities during the recent pandemic, and in
    particular, rural counties and tribal lands. For example, in Navajo
    County, AZ, more than 15 people out of 1,000 died in 2020, up more than
    40 percent from the annual average of 11 people per 1,000. \6\
    ---------------------------------------------------------------------------
         \5\ ``The Impact of the First Year of the COVID-19 Pandemic and
    Recession on Families With Low Incomes''. Amanda Benton, Erica Meade,
    and Alec Vandenberg for the Department of Health and Human Services.
    Sep 20, 2021.
         \6\ Amanda Montanez; Source: ``County-Level Estimates of Excess
    Mortality Associated With COVID-19 in the United States'', by Calvin A.
    Ackley, et al. Preprint posted May 5, 2021.
    ---------------------------------------------------------------------------
        After early pandemic relief funds were gobbled up by large
    companies in higher-income areas, Congress made an effort to ensure
    pandemic relief resources reached difficult to serve communities, and
    CDFIs were part of those successes, as I will discuss in a moment. With
    the Omicron outbreak underway, we must again think critically about how
    we can equitably direct resources to ensure recovery resources reach
    the areas of greatest need. CDFIs can once again play a part.
        About CDFIs and Their Mission CDFIs emerged to help address the
    challenges facing low-income communities and disadvantaged populations
    discussed earlier. They provide financial services in urban
    neighborhoods and rural areas underserved by traditional financial
    institutions, particularly those communities with high rates of poverty
    and unemployment. Certified CDFIs must target at least 60 percent of
    their financial products and services to low-income communities and
    populations.
        The CDFI industry has grown significantly since the advent of the
    CDFI Fund in 1994. Today, the CDFI Fund has certified 1,298 CDFIs
    across the country, providing vital community development lending
    services in all sizes and types of communities. Certified CDFIs include
    565 loan funds, 416 credit unions, 134 depository institution holding
    companies, 167 banks or thrifts, and 16 venture capital funds, located
    in rural and urban areas in all 50 States, the District of Columbia,
    Puerto Rico, and Guam.
        By leveraging over $12 in private capital to every $1 in Federal
    support, CDFIs are filling the critical missing lending gap encountered
    in many communities, creating jobs, improving housing and community
    facilities, building wealth, and creating economic opportunity.
    Recent Impact
        The CDFI Fund administers a growing portfolio of programs designed
    to create jobs, build affordable housing, construct and support
    essential community facilities, provide financial counseling, and
    invest in neighborhood revitalization initiatives--all in distressed
    and underserved communities lacking access to traditional lending or
    banking institutions.
        The latest impact data from an independent audit by the Department
    of Treasury highlighted the impact of CDFI Fund programs in 2020.

        CDFI Fund Financial Assistance Award recipients unleashed
            $39 billion in loans and investments to 125,000 businesses and
            millions of individuals. They financed 50,000 affordable
            housing units and thousands of nonprofits and community
            facilities.

        Healthy Foods Financing award recipients financed 409
            grocery stores, markets, and fresh food projects totaling over
            4 million square feet.

        Native Assistance Program recipients helped Native CDFIs
            originate $1.6 billion in loans and investments to nearly 2,500
            businesses and tens of thousands of individuals.

        New Markets Tax Credit allocatees made $3.3 billion in
            loans and investments to hundreds of projects in low-income
            communities, creating nearly 13,000 permanent full-time jobs
            and 23,000 construction jobs.

        Over the past 5 years, through 2020, Capital Magnet Fund
            award recipients helped secure financing commitments for tens
            of thousands of affordable housing units. Since 2013, the CDFI
            Bond Program has supported $1.3 billion in affordable financing
            for community facilities, nonprofits, commercial real estate,
            and other community development projects.

        CDFI Fund financial assistance helped boost the capacity of
            hundreds of CDFIs in 2020. The Small-Dollar Loan Program
            enabled 52 CDFIs to increase their capacity to provide fair and
            affordable loans in their communities and to help unbanked and
            underbanked borrowers build their credit. The Economic Mobility
            Corps, Bank Enterprise Awards, and CDFI Technical Assistance
            programs all helped boost CDFI capacity to serve low-income
            communities.

        Fiscal Year (FY) 2021 was the busiest year in the history of the
    CDFI Fund. Altogether, the CDFI Fund provided nearly $1.5 billion in
    monetary awards and loans, including $1.25 billion through the CDFI
    Rapid Response Program and over $180 million in technical and financial
    assistance awards. The Fund also committed to guaranteeing $100 million
    in bonds and allocated $5 billion in New Markets Tax Credits.
    CDFIs and Pandemic Relief
        CDFIs played an essential role in helping stabilize and support
    vulnerable communities during the pandemic. America's low-income rural
    and urban communities have borne not just the health consequences but
    also the economic consequences of the pandemic. High unemployment rates
    and small business failure were primarily concentrated in the
    underserved communities where CDFIs work.
        During this unprecedented time in history, CDFIs answered the call
    of marginalized communities and small businesses through participation
    in the Paycheck Protection Program (PPP) and delivering innovative
    financial products and programs to provide loans and investments;
    capacity building; training and technical assistance services; and
    promoting development services efforts that bring credit and capital to
    individuals and communities.
        After the first round of PPP loans went overwhelmingly to
    sophisticated borrowers and well-connected businesses, Congress
    established a set-aside for future rounds for Community Financial
    Institutions (CFIs), which included CDFIs and other mission-based
    lenders. The effort succeeded. Community lenders reached underserved
    businesses with a much greater proportion of their PPP loans than
    conventional banks. According to the SBA, through May of 2021, CDFIs
    made 1.3 million PPP loans totaling over $30 billion or 21 percent of
    total loans. Their average loan size was $21,653 compared to $41,560
    across all lender classes, and nearly 40 percent of their loans reached
    business in low- and moderate-income communities, compared to 28
    percent across all lending sources.
        Additionally, CFI loans reached more small businesses. For example,
    78 percent of their PPP loans went to businesses requesting less than
    $250,000. Moreover, 15.7 percent of CFI-made loans were made to
    businesses in rural communities, closely keeping with the 16.6 percent
    of all loans (some $45.5 billion) that went to rural businesses.
        The 116th Congress made a substantial investment in CDFIs.
    Recognizing the critical role played by CDFIs in rural and urban
    communities across the country, The Consolidated Appropriations Act,
    2021 (P.L. 116-260) provided:

        $1.25 billion for CDFIs to provide technical and financial
            services to communities and businesses hard hit by the
            Coronavirus pandemic. In February, the CDFI Fund released the
            application for the so-called Rapid Response Program (RR), and
            in June 2021, it awarded grants to 850 certified CDFIs;

        $1.75 billion for CDFIs and Minority Depository
            Institutions (MDIs) increase lending and investing activity
            targeted to low-income and minority communities and
            populations. We hope to see more information from the CDFI Fund
            on this initiative soon; and

        $9 billion for the Emergency Capital Investment Program
            (ECIP). ECIP was designed to provide capital to depository
            institutions that are certified CDFI or MDIs. The Department of
            the Treasury opened the application process for CDFI's and MDIs
            in March 2021 and received over 200 applications totaling more
            than $12 billion in requests. On December 14, Secretary Yellen
            and Vice President Harris announced the deployment of $8.7
            billion of direct investments in banks, credit unions, and
            holding companies that are certified CDFIs or MDIs.

        As the economy slowly improves, the small businesses that survive
    will have a pressing need for the patient capital, particularly working
    capital, to get their businesses back on their feet. CDFIs could have
    done more if they had the capital and if more CDFIs had been approved
    as PPP lenders during the early days of the program and can do more
    going forward.
    Looking to the Future
        The recent growth of the CDFI industry presents both opportunities
    and challenges. The Federal Government made an unprecedented investment
    into CDFIs over the past few years with the hope of further scaling the
    industry and expanding its impact. CDFIs' performance during the
    pandemic showed they have the capacity to deliver a high volume of
    financial products and services to communities and people outside the
    economic mainstream. However, Congress--and the CDFI Fund--can do more
    to scale the CDFI movement while ensuring that certified CDFIs maintain
    their role as trusted, mission-driven lenders in underserved
    communities.
    Proposals
        $1 billion in annual appropriations for CDFI assistance programs
    through the CDFI Fund: The CDFI Coalition urges Congress to invest more
    in CDFIs by increasing the annual authorization to $1 billion for the
    CDFI Fund. The CDFI Coalition projects the following outcomes from $1
    billion in annual appropriations for the CDFI Fund:

        $12 billion in total investment in low-income communities,
            over 100,000 affordable housing units created or preserved,
            thousands of loans and investments in childcare centers, health
            clinics, and community facilities, nearly two million consumer
            and home ownership loans, and hundreds of thousands of loans
            and investments in businesses in target markets.

        Strengthen the Bond Guarantee Program (BGP): Despite the unique
    benefits of the BGP, the program has not realized its full potential.
    Only 26 CDFIs have participated in the bond program and as Qualified
    Issuers, and many CDFIs, particularly smaller organizations, are not
    able to access this valuable source of long-term, fixed-rate financing.
    The CDFI Coalition agrees with CRF, USA's recommendations on
    strengthening the program by (1) reducing the minimum bond issuance
    from $100 million to $25 million and (2) increasing program efficiency
    and consistency by granting the BGP permanent authority.
        Build the administrative capacity of the CDFI Fund: To sustain the
    recent momentum and growth in the CDFI industry, Congress should
    support efforts to build the administrative capacity of the CDFI Fund.
    The previous Administration proposed four consecutive budgets aimed at
    dismantling the Fund. The agency needs more resources to administer a
    growing portfolio of financial assistance awards, bonds, and tax
    credit. The CDFI Fund needs more people and an investment in systems to
    administer its programs and authorities, to say nothing of compliance
    monitoring and providing technical assistance.
        Seek additional CDFI feedback on the certification process: With
    the additional administrative resources, the CDFI Fund can refocus on
    overhauling the certification process. The Fund released its draft
    certification rule for public comment in 2019 but delayed
    implementation of the rule due to the pandemic. The pandemic has
    drastically altered the situation in CDFIs' target markets.
        Since 2019, the CDFI industry has grown significantly in size and
    scope. Before proceeding with the certification rule crafted in 2019,
    the Coalition urges the CDFI Fund to convene stakeholder meetings with
    the CDFI industry. Many CDFIs--including CDFI loan funds--have used
    additional resources to expand their service areas. The certification
    rule proposed in 2019 may make it difficult for many established CDFIs
    to scale and serve more markets. This is particularly the case for
    CDFIs with a multistate footprint.
        The certification rule must also ensure CDFIs maintain their high
    standards for thoughtful lending and investment in their target
    markets. With more resources, the CDFI Fund can continue to monitor the
    performance of the expanding CDFI investment footprint and ensure that
    new entrants to the industry are providing affordable financial
    products and services in underserved communities.
        Update the Community Reinvestment Act: The Community Reinvestment
    Act has been a powerful tool in delivering financial services to
    historically disadvantaged populations. CDFIs rely on CRA to secure
    capital from private financial institutions, a key source of capital.
    Without CRA, today's CDFI industry would be a fraction of its current
    size and the scale of its lending and impact correspondingly reduced.
    Communities count on CDFIs, and CDFIs depend on CRA to secure capital.
    The Coalition was pleased that the Office of the Comptroller of the
    Currency withdrew the final rule for its misguided 2020 CRA overhaul
    earlier this year. We are encouraged by the willingness of the three
    regulatory agencies to work together on a CRA unified framework. While
    CRA has been generally successful, it is in need of an update and a
    tune-up. To meet CRA's requirements, banks invest in affordable
    housing, small businesses, and other community development activities
    that bring historically disadvantaged populations into the economic
    mainstream. However, as the recent pandemic and the protests of the
    summer of 2020 made clear, the legacy of discriminatory red-lining
    lives on in many communities of color where poverty and unemployment
    still outpace the national average and community infrastructure is
    inadequate. With the right data-driven reforms, CRA can be much more
    effective in delivering on its original promise for these communities.
        At a baseline, CRA modernization should result in a net increase in
    both the quantity and quality of financial products and services
    available in LMI areas. The burden is on Federal regulators to show--
    with data and evidence--that their reform proposals can meet those
    baseline goals for reform. The Coalition believes a modernized CRA
    framework should meet the following five tests. Reforms should: (1)
    boost the voices and input of community groups in conducting CRA exams
    and developing CRA ratings; (2) generate additional investment in
    traditional community development activities in CRA deserts; (3)
    encourage thoughtful, high-impact investments significant benefits to
    low- to moderate-income (LMI) communities; (4) strengthen
    accountability for financial institutions; and (5) most importantly,
    ensure financial institutions are serving people of color and
    traditionally disadvantaged groups.
    Conclusion
        The last Congress made a substantial bet on CDFIs as a conduit for
    delivering relief and revitalization to our hardest-hit communities and
    populations. Thus far, the bet has paid off. The CDFI industry is
    growing, serving more businesses and families, and delivering financial
    services to areas of persistent poverty and unemployment. Providing
    more resources through the CDFI Fund will ensure the continued growth
    of mission-driven financial services.
        Thank you for this opportunity to testify. I would be happy to
    respond to any questions.
                                     ______

                       PREPARED STATEMENT OF FRANK ALTMAN
        Founder and CEO, Community Reinvestment Fund, USA, Minneapolis,
                                   Minnesota
                                January 5, 2022

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                     ______

                       PREPARED STATEMENT OF LAKOTA VOGEL
       Executive Director, Four Bands Community Fund, Eagle Butte, South
                                     Dakota
                                January 5, 2022
        Thank you Chairwoman Smith, Ranking Member Rounds, and
    distinguished Members of the Subcommittee I am honored to have been
    included as a voice in this important hearing to share the successes
    and challenges of CDFIs serving underestimated communities across the
    Nation.
        My name is Lakota Vogel. I am an enrolled member of the Cheyenne
    River Sioux Tribe, born and raised on a ranch in South Dakota. I am the
    Executive Director of Four Bands Community Fund, a 22 year old rural,
    Native CDFI that started by serving all residents of the Cheyenne River
    Sioux Reservation in north central South Dakota and expanded in 2013 to
    serve native entrepreneurs across the entire State. I am on the
    executive committee of the South Dakota Native Homeownership Coalition
    and a member of the Mountain Plains Regional Native CDFI Coalition.
        I am here today to share the perspective of on the ground leaders
    within the Native CDFI movement, which spans 69 separate organizations
    operating across 27 States. The core of our mission and purpose of our
    programming is aimed at leveling inequities stemming from a historic
    lack of investment and access to capital, as well as noninclusive
    policies, in the communities we serve.
        With two decades of experience, Four Bands has continuously
    improved our products and services to successfully deploy over $25
    million across the State. We utilize an integrated approach in lending
    which fuses relationship building and learning with loan products. Our
    suite of programs are designed to revive traditional culture that
    supports self-sufficiency by focusing on two core areas:

        Entrepreneurship--Four Bands offers a comprehensive
            business training program, customized business coaching, and
            several lending products to help entrepreneurs at various
            stages of development start or expand a business. Our business
            loans provide up to $250,000 in capital that can be used for
            equipment and inventory purchases, working capital, acquisition
            of land or buildings, construction of buildings, and/or
            leasehold improvements for a commercial space. We also operate
            a business incubator that provides physical space, in addition
            to our entrepreneur programming, to six businesses. Our average
            business loan client is a female head of household who dreams
            of starting a business in the service industry that doesn't
            require a lot of start up capital, such as a restaurant, day
            care or a hair salon. In turn, these industries have a thin
            profit margin and have more difficulty accessing capital from
            financial institutions because of their small dollar nature and
            small balance sheet. Four Bands has deployed over $20 million
            to the small business sector resulting in the creation/
            expansion of over 300 native owned small businesses and we can
            proudly say, due to lots of innovation, with partners like CRF,
            and resource stacking, we did not lose one small business to
            the pandemic across the State.

        Consumer and Home Ownership--A unique challenge within our
            communities is invisible credit histories. We are fortunate to
            have 4 financial institutions serving Cheyenne River, but only
            1 of them, the Credit Union reports to the Credit Bureaus. So
            we have generations of borrowers, utilizing debt tools for
            decades at the local institutions who remain invisible not due
            to the individual borrowers behaviors but due to institutional
            decisions. Four Bands began reporting to the credit bureaus in
            2010. Our foresight and community mindedness, has primed our
            market for home ownership.

        As our balance sheet grew, we were finally able to offer mortgage
    products to our community in 2019 in partnership with USDA as 1 of the
    2 pilot sites for the 502 Direct Lending program. While we were able to
    close 8 mortgages with initial pilot, we spurred the demand and have
    since closed a total 42 mortgages on Cheyenne River within 1-and-a-half
    years.
        My recommendations today are simple:

      1.  Advance the Native American Rural Homeownership Improvement Act.
            Thank you to Chairwoman Smith and Ranking Member Rounds for
            cosponsoring this legislation. The pilot was an enormous
            success and we've now built up a demand of over $7 million that
            cannot be met within our community. Access to these funds
            should include all Native CDFIs across the Nation.

      2.  Increase the Native American CDFI Assistance (NACA)
            appropriations to $50M to meet the needs. Overall Government
            spending has increased by 30 percent, and the CDFI Fund
            appropriations have increased by 13.7 percent, but the annual
            appropriations for NACA have remained stagnant since 2014 and
            demand for service is increasing.

        All of this to say, the tool, the Native CDFI tool works, it's just
    chronically undercapitalized. We are part of the communities we serve.
    We run into our clients in the grocery store. We sit on the Daycare
    Board of Directors desperately trying to keep these vital programs
    running. As Native CDFI staff and community members, we are woven into
    the fabric of the community and almost every aspect of our clients
    financial lives. There's no comparison to sitting across from our
    clients at tax time, assessing their earnings for the year and planning
    for the future. We are the gentle nudge to savings accumulation and the
    sounding board for many of the financial decisions our families make.
    We believe ``how you perceive is how you proceed.'' We perceive
    opportunity because our success as Nation builders is intricately woven
    into the success of our neighbor.
        Thank you for this opportunity to testify.

             RESPONSES TO WRITTEN QUESTIONS OF CHAIR SMITH
                        FROM JOHN HOLDSCLAW, IV

    Q.1. What steps, if any, should be taken to improve the
    diversity of leaders in the CDFI sector?

    A.1. Community development initiatives succeed when
    organizations are representative the communities they serve.
    Congress should continue to support programs and initiatives
    that bolster the capacity of emerging CDFIs, many of which are
    led by people of color. Since FY 2004, the CDFI Fund has
    included a Small and Emerging CDFI (SECA) category as part of
    the FA award. The SECA category provides smaller levels of
    financial assistance to CDFIs with fewer assets or those in
    operation for fewer than three years. CDFIs use SECA awards for
    financing capital, loan loss reserves, capital reserves,
    financial services, or development services. In appropriations
    statutes, Congress typically waives the requirement for SECA
    award recipients to provide a ``match.''
        A 2014 study by the Carsey Institute found that SECA grants
    have been successful in building the organizational capacity of
    new and emerging CDFI loan funds. ``Assets and loans grow,
    earned income grows, as does personnel expense. The CDFI [Fund]
    investment strengthens these organizations and causes growth.''
    \1\
    ---------------------------------------------------------------------------
         \1\ ``CDFIs Stepping Into the Breach: An Impact Evaluation'',
    2014, Carsey Institute for Public Policy University of New Hampshire.
    ---------------------------------------------------------------------------
        In FY 2021, the CDFI Fund made 68 SECA grants for a total
    of $19.9 million. Bolstering and creating permanent funding
    streams through programs like SECA for small and emerging CDFIs
    is one strategy to improve the diversity of leaders within the
    CDFI sector.

    Q.2. What do you believe to be the biggest challenge to CDFI
    certification for prospective CDFIs?

    A.2. Right now, the biggest challenge is that the CDFI Fund
    needs more staff and resources.
        As I testified, the economic consequences of the COVID-19
    pandemic on low-income communities and populations have been
    severe, and CDFIs have stepped up to provide financial products
    and services in economically distressed communities through the
    Paycheck Protection Program (PPP) and other programs. In the
    Consolidated Appropriations Act of 2020, Congress made a
    historic investment in CDFIs. The combination of continuing
    need to revitalize distressed communities, as well as the
    opportunity afforded by the greater appropriations, has
    increased the interest in the CDFI program and, consequently,
    in CDFI certification. There has been a great increase in the
    number of certified CDFIs. In 2017 there were some 700
    certified CDFIs, and in 2021, there are now more than 1,300.
        Appropriations to support the work of the Fund have not
    kept pace. In 2017, the CDFI Fund had 77 full-time employees
    (FTEs). The number actually fell to 70 in 2020. The budget
    request proposes to fund 89 positions in 2022.
        The CDFI Fund needs more staffing and improved technology
    to handle the growth in certified CDFIs over the last 5 years,
    in addition to the increased demand that has been developed by
    new organizations seeking to become certified CDFIs. The Fund
    needs to invest in an expanded and robust technical assistance
    program to assist existing certified CDFIs in implementing
    programs and to assist new organizations seeking certification
    on the details of certification policy and procedures.

    Q.3. How has the CDFI Fund's guidance and technical assistance
    (e.g., webinars, meetings, user guides, etc.) been helpful to
    you? How do you believe the CDFI Fund can improve outreach and
    guidance?

    A.3. The CDFI Fund can improve its technical assistance by
    providing on the ground technical assistance aimed at both
    existing organizations as well as those considering CDFI
    certification. Such an effort conducted by CDFI Fund employees,
    qualified technical assistance organizations or both should be
    aimed at program implementation and compliance issues for
    existing CDFIs and training and technical assistance on
    certification and related topics for those organizations
    considering seeking certification.
                                    ------

                   RESPONSES TO WRITTEN QUESTIONS OF
                SENATOR MENENDEZ FROM JOHN HOLDSCLAW, IV

    Q.1. The Build Back Better Act currently being debated by
    Congress contains many crucial investments in community
    development. For instance, the House-passed version of the bill
    provides $2.2 billion dollars to eligible institutions,
    including CDFIs, to assist first-time, first-generation
    homebuyers. It also contains $3 billion dollars for these
    institutions for community facilities and other housing and
    civic infrastructure.
        Could you describe what kind of impact these programs could
    have in the communities your institution serves?

    A.1. In addition to the $5.2 billion you mentioned, provisions
    within the House-passed Build Back Better (BBB) legislation
    included a substantial investment in Federal housing and
    community development programs totaling $17.5 billion,
    including $925 million at the CDFI Fund to establish the
    Housing Investment Fund, a new program authorization designed
    along the lines of the Capital Magnet Fund. Other programs that
    received substantial investments within the legislation include
    housing vouchers, public housing, HOME, CDBG, and new
    initiatives for community revitalization.
        CDFIs have a strong track record of financing community
    facilities and affordable housing. In 2020, according to data
    from the 2020 Annual Certification report, CDFIs provided
    nearly $6 billion in capital to health care facilities,
    schools, nonprofits, daycare centers, and other community
    facilities. They also provided $38 billion in financing for
    mortgages and home improvement loans.
        CDFI Program award recipients--who represent a mere
    fraction of all CDFI activity, financed nearly 50,000 units of
    affordable housing.
        CDFIs leverage $12 for every dollar in Federal assistance.
    The CDFI Coalition recently projected the impacts for $1
    billion in annual appropriations for the CDFI Fund (our FY 2022
    and FY 2023 request):

        $12 billion in total investment in low-income
            communities, over 100,000 affordable housing units
            created or preserved, thousands of loans and
            investments in childcare centers, health clinics, and
            community facilities, nearly two million consumer and
            home ownership loans, and hundreds of thousands of
            loans and investments in businesses in target markets.
                                    ------

           RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNOCK
                        FROM JOHN HOLDSCLAW, IV

    Q.1. What do you think we can do to make the process to
    becoming a CDFI more efficient for institutions that are
    qualified and want to become certified to be able to do so?

    A.1. As indicated in my responses to Senator Tina Smith's
    questions, the CDFI Fund needs additional staff and resources
    to improve the efficiency of the CDFI Certification Process. On
    January 31, CDFI Fund Director Jodi Harris released a message
    outlining the agency's priorities and ongoing initiatives.
    Included within her message was an acknowledgment that while
    there had been a working agency policy for CDFI applications to
    be processed within 90 days of receipt, the CDFI Fund is now
    unable to keep to that timeline. Reports from applicants
    indicate that current wait times for certification now hovers
    between 6-10 months.
        There are four primary elements needed to help create a
    more efficient certification process. Certainly, increasing
    department staffing to adequately handle the volume and
    complexity of certification applications is in order.
    Additionally, direct case management and business hour access
    to a staff-answered helpline would offer a capacity for prompt
    responses and immediate assistance to certification applicants
    that is currently missing. Working in tandem with that
    approach, increasing investment in application Technical
    Assistance resources and detailed application guidance would
    facilitate greater application efficiency. Ultimately, the
    resources provided should work to ensure that the current
    application backlog decreases, the timeline for certification
    by agency staff gets back to within a 90-day processing window,
    and the CDFI Fund continues to maintain its high standards for
    CDFI certification.

    Q.2. Would you please describe your experience working with the
    Paycheck Protection Program? How did your members leverage
    their experience as a CDFI to get the relief out to communities
    you serve?

    A.2. When PPP was first enacted, all businesses and financial
    institutions were not treated equally. Large banks and
    businesses with established finance infrastructure were best
    equipped to leverage Federal pandemic resources. The
    communities, financial institutions, and businesses most at
    risk of collapse were the last in line for access to these
    resources.
        According to the SBA's COVID Relief Paycheck Protection
    Program Report (data as of 05/24/2021), Community Financial
    Institutions. \2\ approved 1,389,287 loans for more than $30.08
    billion of PPP funds. The average loan size was $21,653, and
    77.9 percent of these loans went to firms requesting less than
    $150,000 in PPP loans. 39.7 percent of funds went to businesses
    located within low- and moderate-income communities.
    ---------------------------------------------------------------------------
         \2\ Community Financial Institutions (CFIs) include four types of
    mission lenders--Minority Depository Institutions (MDIs), Small
    Business Administration (SBA) microlenders and Certified Development
    Corporations.
    ---------------------------------------------------------------------------
        During the disbursement of PPP loans, our members saw a
    record jump in public requests for information about how to
    access CDFIs within local communities. What the experience from
    PPP shows is that with additional resources, CDFIs have the
    capacity to provide a much greater level of financial products
    and services to low-income communities and populations.

    Q.3. Have your members been able to utilize the CDFI Rapid
    Response Program, and has the program been effective?

    A.3. The money from the Rapid Response Program (RRP) was
    awarded in June 2021. Subsequently, our members are just
    starting to see the results in their communities. The program
    was established to provide the necessary capital for CDFIs to
    respond to economic challenges created by the COVID-19
    pandemic, particularly in underserved communities, and those
    challenges remain to this day.
        Overall, 863 CDFIs were awarded $1.25 billion in RRP funds
    for distribution. The legislation directed at least $25 million
    to be awarded to benefit Native Communities. When the awards
    were released, the award recipients included 58 organizations
    that committed to direct their awards to investments in Native
    American, Native Alaskan, and Native Hawaiian communities; they
    received a total of $54.6 million in awards. In addition, 28
    organizations that primarily serve Puerto Rico received $47.3
    million in awards, and 90 minority depository institutions
    received a total of $133.9 million in awards.
        In terms of meeting the needs of small towns and rural
    America, 277 CDFIs serving small urban areas received $414
    million in awards, and 245 CDFIs serving rural users received
    $353 million in RRP awards.
        Given the high demand and general scramble to access
    initial pandemic-relief funds, such as Paycheck Protection
    Program loans, the ability to separately access additional
    pandemic-relief RRP funds has been beneficial for our member
    CDFIS. Given the effects of the Delta and Omicron variant waves
    in prolonging business recovery efforts from COVID-19, the
    availability of the RRP funds is extremely helpful for
    vulnerable businesses still attempting to manage the economic
    fallouts from the pandemic.

    Q.4. The Build Back Better Act as passed by the House includes
    a new Community Restoration and Revitalization Fund (CRRF)
    program at the Department of Housing and Urban Development. I
    strongly support the CRRF proposal to advance place-based
    policies that could be scaled significantly such as those led
    by Purpose Built Communities, a national nonprofit founded in
    Atlanta, Georgia, after the successful revitalization of the
    East Lake neighborhood. Would you please speak to the potential
    impact of a program such as the CRRF to support community led
    development projects? Would you elaborate on the importance of
    including local community stakeholder in these development
    projects, and why strategies should be place-based?

    A.4. Last fall, the CDFI Coalition joined with a coalition of
    Main Street advocates, parks and public space organizations,
    affordable housing developers and stakeholders, and other
    mission-based entities to support the creation of the Community
    Restoration and Revitalization Fund (CRRF) at HUD.
    Congressional support for investments in ``community-led
    redevelopment projects in distressed communities'' as part of
    the Build Back Better Framework reflects a critically important
    recognition that neighborhoods need a holistic ecosystem of
    resources to thrive.
        As community partners who have worked with urban, suburban,
    and rural communities for decades, we are aligned behind a
    common belief that robust civic infrastructure is essential to
    creating neighborhoods where people want to live, work, and
    play, as civic infrastructure are the places that boost our
    economy, increase our economic and environmental resiliency,
    support our health and well-being, and strengthen our
    democracy.
        The specific projects may vary between neighborhoods, but
    across the country, we see immense value in the community
    assets that serve as the connective tissue between people and
    places, particularly when they are located near housing that is
    affordable to households across the income scale.
        However, we have also worked for decades with communities
    that have received neither adequate nor equitable investment in
    this critical infrastructure. In these neighborhoods,
    segregation and concentrated poverty continue to entrench
    cycles of disadvantage that are proven to disproportionately
    impact Black, Latino, and other communities of color.

    Q.5. Would you speak to strategies to target Federal
    investments to catalyze and accelerate holistic community
    revitalization, beyond just putting roofs over folks head? How
    can we leverage Federal dollars to ensure access to quality
    education, safe and affordable housing, as well as access to
    health care?

    A.5. There are a variety of very effective Federal programs
    that provide discrete funding for specific activities.
    Community development tax credits support the construction of
    affordable housing, bond programs support new school
    construction, and grant programs support new and improved
    federally qualified health centers, to name a few examples. All
    of these initiatives can (and do) benefit from the
    participation of CDFIs.
        As flexible, mission-driven, community-based financial
    institutions, CDFIs are attuned and responsive to a broad range
    of community needs. They have a track record of mobilizing $12
    in capital for every dollar of Federal support and putting
    those resources to work in support of affordable housing, small
    business loans, and the improvement of social services. To
    ensure community development programs meet the needs of
    distressed and underserved communities, we urge Congress to
    consider set-asides for CDFIs when crafting new initiatives.
    The CFI (and CDFI) set-asides in PPP helped deliver more
    support to the hardest-hit communities. Recent legislation in
    the House to expand access to childcare and early childhood
    education would set aside as much as 15 percent for CDFIs to
    serve as intermediaries and technical assistance providers, and
    several States have set aside funding through the CARES Act and
    ARPA for CDFIs for this purpose. \3\
    ---------------------------------------------------------------------------
         \3\ ``Capitalizing on the Capabilities of Child Care Resource and
    Referral Agencies and Community Development Financial Institutions To
    Stabilize and Increase the Supply of High-Quality Child Care''. https:/
    /info.childcareaware.org/hubfs/2021-CCRR%20and%20CDFI%20
    Intermediaries%20PaperFINAL-1.pdf
    ---------------------------------------------------------------------------
                                    ------

             RESPONSES TO WRITTEN QUESTIONS OF CHAIR SMITH
                           FROM FRANK ALTMAN

    Q.1. Please describe the role of a qualified issuer in the CDFI
    Bond Guarantee program. How does a qualified issuer interact
    with other CDFIs? What role do they play in facilitating
    financing?

    A.1. The Qualified Issuer (QI) has a multifaceted role in the
    CDFI Bond Guarantee program (BGP). In the initial stage when a
    CDFI(s) is looking for resources, the QI serves as the
    ambassador for the BGP, explaining and educating prospective
    participants about the program, the nature of the capital
    available, eligibility, as well as how and when the funds must
    be deployed.
        If the CDFI is deemed to be a ``good fit'' for the program,
    the QI transitions to serving as a ``mission-driven advisor
    providing technical compliance and structuring services.'' In
    this stage, the QI assists certified CDFIs in their effort to
    access the BGP which provides fixed-rate, 30 year fully
    amortizing debt provided by the Federal Financing Bank--the
    sole investor in bonds issued through this program. As a
    ``mission-driven'' advisor providing technical compliance and
    structuring services, the QI assesses the creditworthiness of
    the eligible CDFI to confirm its ability and willingness to
    repay the bond obligation. As part of this process, the QI will
    evaluate the lending, disbursing, servicing, and monitoring
    capabilities of the CDFI. The QI will then prepare and submit a
    guarantee application to the CDFI Fund on behalf of the
    eligible CDFI. It will also prepare and submit a term sheet.
    During this period, the QI facilitates an ongoing review,
    presentation, and negotiation of terms with the bondholder
    (Federal Financing Bank) and the Guarantor (Treasury Department
    as represented by the CDFI Fund program staff). Assuming the
    guarantee application is approved, the QI is listed as the
    lender of record and issues the bond. Throughout this process,
    the QI is providing technical assistance to the eligible
    CDFI(s) on how to best leverage the bond funds to support its
    lending activities most effectively. This involves actively
    engaging with and listening to the eligible CDFI(s) to design
    and develop financial structures that meet the credit needs of
    the borrowing CDFI(s).
        Once the bond has been issued, the QI takes on the role of
    ``program administrator'' managing, monitoring, and guiding the
    CDFI(s) as they utilize the Bond Loan funds. Servicing
    oversight is a key function performed by the QI staff
    facilitating draw-downs on Bond Loan funds for the
    participating CDFI(s). They also offer technical assistance
    with respect to pricing strategy and optional redemption of
    Bond Loan funds. As program administrator, the QI provides
    oversight and guidance to the CDFI participant(s) assisting
    with compliance, reporting, receiving, and reviewing each
    Secondary Loan Certification. The QI is responsible for
    enforcing the terms and requirements of the Bond Trust
    Indenture and Bond Loan Agreement as well as the Agreement to
    Guarantee. Collateral and credit enhancements are reviewed by
    the QI staff on an ongoing basis. Agency administrative fees
    are paid by the QI pursuant to a predefined payment plan. The
    QI also submits all required reports and additional
    documentation as requested by the CDFI Fund in a commercially
    reasonable fashion.
        In summary, the QI is responsible for sourcing,
    structuring, evaluating, and closing of Bond Loans with
    eligible CDFIs. Through the sales process, the QI assesses the
    capacity of the eligible CDFI(s) to lend and key capabilities
    required to meet the standards and expectations associated with
    a Federal credit program. Each QI maintains a robust front-end
    process to source, review, approve, and negotiate terms for a
    wide variety of CDFIs seeking to access the Bond program. The
    QI also provides ongoing support on technical matters such as
    strategies for accessing the debt, structuring, and utilizing
    program funds, and troubleshooting issues that arise over the
    term of the bond. Thus the QI's role is to build the capacity
    of eligible CDFIs to use the Bond Loan funds most effectively
    to support their financing activities in underserved
    communities.

    Q.2. Please describe how the Bond Guarantee program has been
    used for childcare facilities.

    A.2. The Bond Guarantee program has been used to support
    childcare facilities. According to the Office of the Inspector
    General, Department of the Treasury, Audit of the Community
    Development Financial Institutions Fund's Financial Statements
    for Fiscal Years 2021 and 2020, December 15, 2021, $13 million
    has been disbursed since inception of the Bond Guarantee
    program for childcare facilities with another $30 million in
    proposed disbursements. One organization on whose behalf CRF
    has issued guaranteed bonds is the Low Income Investment Fund
    (LIIF), a preeminent CDFI. LIIF provided the following examples
    of how they have used bond guarantee resources to finance
    childcare facilities.
        The Low Income Investment Fund (LIIF), a national nonprofit
    CDFI loan fund and a leading CDFI in the early care and
    education finance space, has used BGP for three childcare
    facilities since 2016. Each of these projects reflects a unique
    and flexible use of the program, including helping childcare
    providers purchase the facility they previously rented and
    helping a developer finance a mixed-use development in which a
    childcare provider was a tenant.

        Mission Child Care Consortium, Inc. (San Francisco,
            CA). Mission Child Care Consortium, Inc. (MCCCI) has
            provided subsidized childcare in San Francisco for over
            35 years. In 2017, LIIF provided a $3.5 million loan to
            purchase the building that MCCCI had been leasing since
            1985. The purchase price (and appraisal) was $5.6
            million, and the remaining balance was covered by a
            combination of grants and cash equity. This allowed
            MCCCI to replace their $312,000 annual lease with a
            $267,000 annual mortgage payment, alleviating some
            financial pressure on the organization. MCCCI intended
            to raise funds over the 10-year term of the loan to
            make periodic unscheduled principal reductions to the
            outstanding balance to be refinanced at maturity. They
            have now reduced the principal balance to $2.4 million.

        St. Nicks Alliance/Small Steps Daycare (East
            Williamsburg, Brooklyn, NY). LIIF provided $13.5
            million in total financing to help preserve a community
            facility in East Williamsburg, Brooklyn that had been a
            staple of the community for over 40 years, providing
            both childcare and a senior center to low-income
            residents. In 2013, a new owner purchased the property
            with the intent of evicting the center operator and
            redeveloping the site as luxury condominiums, even
            going as far as serving the center staff with a 30-day
            eviction notice on Christmas Eve. After a lengthy legal
            and PR battle, armed with support from the community
            and local elected officials, SNA succeeded in securing
            an agreement to purchase the property directly from the
            owner. LIIF provided a $7.47 million acquisition loan
            to SNA Ainslie LLC, an affiliate of St. Nick's Alliance
            (SNA), to help bridge grant funding that local elected
            officials had designated for the project. LIIF then
            provided $4 million in permanent financing for the
            project in the form of a 25-year loan through BGP. LIIF
            was able to make this BGP loan because it is a program
            of a strong multiservice nonprofit with the balance
            sheet to support the long-term debt service obligations
            even though the childcare center may encounter
            volatility in its operating revenues over the years.

        Cooper Gardens-Tender Tots Child Care (Bronx, NY).
            LIIF provided $9 million loan to L&M Development
            Partners, Inc., to finance the multitenant commercial
            component of a mixed use affordable housing property in
            which one of the tenants was a childcare center. The
            commercial component of the project was too large to be
            included within the housing financing, so BGP was a
            good option that helped the developer secure the
            construction financing. The developer had the strength
            and wherewithal to carry the project to completion,
            which took several years. LIIF's BGP loan provided
            long-term predictability to the developer at a
            competitive rate, which will help keep rents to the
            commercial tenants--including the childcare center--for
            many years.

        In addition to using BGP for childcare facilities, LIIF
    completed a $10 million New Markets Tax Credit (NMTC) structure
    in partnership with the City of San Francisco's Office of Early
    Care and Education to enable financing for multiple childcare
    centers. Mission Neighborhood Center (MNC) leased a commercial
    space in a new construction building (which included three
    commercial spaces and 157 units of affordable housing) and
    needed financing to build out the 8,150 square foot space. The
    combination of grant funding and $2.44 million in NMTC subsidy
    brought the interest rate down to 1.28 percent with annual debt
    service of $30,000. Although not applicable to this project, a
    potential use of BGP for other childcare facilities financed
    using NMTC would be converting the NMTC financing to permanent
    financing through BGP, thereby allowing the provider to access
    long-term, low-cost, fixed-rate financing at the end of the 7-
    year NMTC period.

    Q.3. What effects would the CDFI Bond Guarantee Program
    Improvement Act have on the program and on CDFIs' ability to
    raise capital? How would it impact childcare facilities?

    A.3. CRF believes the CDFI Fund Bond Guarantee Program
    Improvement Act would expand the ability of CDFIs to raise
    capital and to provide additional support for childcare
    facilities. LIIF, a CDFI on whose behalf CRF has issued Bond
    funds provided the response below.
        The CDFI Bond Guarantee Program Improvement Act would have
    a positive impact on the program and would increase CDFIs'
    ability to direct BGP resources to childcare facilities. First,
    permanently authorizing BGP will provide much-needed certainty
    and clarity about the program's ongoing ability to serve as a
    reliable resource to CDFIs and our borrowers. Certainty and
    reliability are critical ingredients to successful financing
    across all asset classes, including childcare, and can motivate
    further innovation. Second, reducing the minimum loan size to
    $25 million will also help increase smaller CDFIs' access to
    the program, many of whom likely have existing relationships
    with local childcare providers who could benefit from BGP
    financing.
        While the CDFI Bond Guarantee Program Improvement Act would
    have a positive impact on CDFIs working to finance childcare
    facilities, the most urgent and critically needed form of
    assistance for childcare facilities is additional grant
    capital. The childcare business model itself is economically
    tenuous. Even with childcare costs already out of reach for
    most households, staffing demands, nontraditional hours, and
    other unique expenses required to care for young children means
    that it costs more to operate a childcare program than most
    tuition payments can cover. The childcare sector overall has
    been historically underfunded, so what little operating
    subsidies that are available to childcare providers often help
    them simply break even.
        There is also no dedicated source of Federal funding to
    acquire, construct and renovate childcare facilities, meaning
    that providers must be incredibly innovative in finding
    flexible sources of affordable capital to meet their facility's
    needs. Most childcare providers are unable to access
    traditional financing sources to cover costly acquisition,
    renovation, or construction costs associated with improving
    their facility or opening and expanding into a new space. Many
    CDFIs, including LIIF, have been working for decades to cobble
    together various resources from State and local governments,
    philanthropy, and private sources to help providers meet their
    facility needs. Given the challenging economics in the
    industry, the vast majority of providers are unable to
    accommodate or sustain debt financing, and instead rely on
    grant capital and other forms of forgivable loans.
        The National Children's Facilities Network (NCFN), which
    LIIF cochairs, is a Network of more than 60 CDFIs, financial
    and technical assistance intermediaries, and other childcare
    stakeholders focused on elevating the importance of high-
    quality childcare facilities and strong business models. NCFN
    strongly supports Federal funding to establish a dedicated
    source of capital to acquire, construct and renovate childcare
    facilities, with a set-aside of resources for CDFIs and other
    intermediaries to offer critical technical assistance and
    capacity building support. This model has been proposed in
    Assistant Speaker Katherine Clark's Child Care is
    Infrastructure Act (H.R. 1911), as well as included in an early
    version of the House Ways and Means Committee's Build Back
    Better Act.

    Q.4. Why do you believe that secondary markets are needed for
    CDFI small business lending?

    A.4. When I cofounded Community Reinvestment Fund, USA (CRF) in
    1988, there were scores of community-based revolving loan funds
    (RLFs) in cities, neighborhoods and small towns throughout
    Minnesota that were lending money for business and economic
    development from a variety of funds. All of these RLFs relied
    on repayments from borrowers to recapitalize their funds for
    future lending. The slow rate at which these RLFs received cash
    repayments often caused them to run out of cash sufficient to
    make more loans. Very few of these RLFs were capable of raising
    cash by borrowing, so they were unable to respond to local
    needs in a reliable and consistent manner. CRF was created to
    provide liquidity to RLFs (precursors to CDFIs) and public
    economic development agencies by allowing them to sell their
    loans and use the cash to make new loans. This secondary market
    greatly increased the velocity of dollars in the RLFs and
    reduced their need to seek government or philanthropic grants.
    CRF served as an aggregator of loans from local RLFs and
    ultimately transformed the loan pool into investable securities
    through the process of asset securitization.
        Secondary markets would be extremely helpful for CDFI small
    business lenders because they will provide liquidity through
    the purchase of loan assets, thereby alleviating the lending
    constraints imposed by the size of their balance sheets. An
    active secondary market will enable CDFIs to significantly
    expand their lending volumes without overleveraging their
    balance sheets. And it will provide safe, responsible lending
    products for small businesses. Having a secondary market would
    therefore allow CDFIs to free up space on their balance sheet
    when they reach a point where they need to raise additional
    equity to maintain a prudent leverage ratio (equity as a
    percent of assets).
        Two critical infrastructure components are needed to do
    this at scale: First, CDFIs need access to a large-scale and
    liquid secondary market where they can sell their loans on an
    ongoing basis. The secondary market for the guaranteed portion
    of SBA 7(a) loans offers a good example of an effective
    secondary market for small business loans. Second, secondary
    market intermediaries need access to warehouse facilities to
    enable them to aggregate loans for securitization. The larger
    the pool of aggregated loans, the lower the risk to investors
    through asset diversification. Larger pools are also more cost
    efficient and ultimately deliver better pricing to CDFIs.
        Periods of financial stress, such as the Great Recession
    and the COVID-19 pandemic, demonstrated the critical role CDFIs
    played providing a lifeline to struggling small and BIPOC-owned
    businesses that did not have an existing relationship with a
    commercial bank by offering Paycheck Protection Program (PPP)
    and other types of relief loans. They soon exhausted their
    existing lending capital and would not have been able to make
    more PPP loans without the Federal Reserve System's Paycheck
    Protection Program Liquidity Facility (PPPLF) which extended
    credit to eligible financial institutions (including CDFIs)
    taking the loans as collateral at face value. While the PPPLF
    was a secured financing vehicle rather than an asset-purchase
    vehicle, it showed that the Federal Reserve could play a direct
    role in supporting CDFI liquidity needs to continue lending
    during the crisis.
        The lessons of the PPPLF provide policymakers with a road
    map of how to help CDFIs increase their impact and reach
    underserved BIPOC, rural and Tribal communities. Specifically,
    policies that foster the development of secondary markets for
    small business loans, as well as other types of CDFI loans, are
    an essential component of a well-functioning financial system
    that incorporates liquidity mechanisms to support the smooth
    flow of credit to customers by providing an outlet for these
    assets. Furthermore, funding facilities offering a ready source
    of cash, like a discount window for CDFIs, would ensure these
    institutions have the financial resources to expand their
    lending to meet the credit needs of their clients. Both the
    ability to sell assets through secondary markets and accessing
    cash through funding facilities are vital if CDFIs are to reach
    scale and deliver meaningful impact. CRF is encouraged by the
    Senate Banking Subcommittee's interest in exploring how to
    promote the development of secondary markets for CDFI loans and
    welcomes the opportunity to offer additional input on potential
    legislative proposals.

    Q.5. Please describe the current state of the secondary market
    for, and securitization of, CDFI loans.

    A.5. At present, there is no formal or established secondary
    market for and/or securitization of CDFI loans. The Riegle
    Community Development and Regulatory Improvement Act of 1994
    (P.L. 103-325; Sept. 23, 1994), which authorized the CDFI Fund
    and its programs, envisioned a role for secondary markets to
    provide liquidity for CDFI lenders and their loans. Section 113
    (12 U.S.C. 4712) authorizes the CDFI Fund to ``provide
    assistance for the purpose of providing capital to
    organizations to purchase loans or otherwise enhance the
    liquidity of community development financial institutions'' if
    such organizations meet specific requirements. However,
    Congress never appropriated funding for Section 113 (12 U.S.C.
    4712) and therefore, it has never been implemented. This
    section needs to be modernized or updated to provide a platform
    for piloting the CDFI Fund's role in stimulating secondary
    markets for CDFI loans.
        Prior to the Great Recession, CRF's business model was to
    operate a secondary market for community development loans. We
    aggregated these loans on our balance sheet using a warehouse
    line of credit provided by a bank. Once we had purchased a
    predetermined volume of loans, we issued asset-backed
    securities collateralized by these community development loans.
    However, due to changes in the market, we have not engaged in
    this activity since that time. As noted above, there is a well-
    developed secondary market for government guaranteed SBA 7(a)
    loans that is available to CDFIs on a limited basis. As one of
    three CDFIs operating a Small Business Lending Company, CRF
    offers the regular SBA 7(a) loan product and frequently sells
    the guaranteed portion of these loans into the secondary
    market. More than 100 CDFIs are approved to participate in the
    SBA's Community Advantage (CA) Pilot Program which offers a
    scaled-down version of the 7(a) product capped at $250,000 and
    with more flexible pricing. Some, but not all, CA lenders are
    approved to sell the guaranteed portion of their loans into the
    secondary market. While the CA loan product is a useful tool,
    it is a pilot program that has not been made permanent at this
    time.
        While CDFI loans are not currently widely securitized, \1\
    there are one-off securitizations of these assets, such as the
    recent $297 million offering by The Change Company, which was
    collateralized by residential loans originated by this CDFI. In
    the absence of a formal secondary market for CDFI loans, assets
    most likely to be securitized are those that exhibit a high
    degree of standardization, a common set of underwriting
    criteria and a well-established track record of being
    securitized, such as residential mortgages. Small business
    loans, on the other hand, do not typically share a common set
    of underwriting criteria, especially those originated by CDFIs,
    making them more difficult to securitize.
    ---------------------------------------------------------------------------
         \1\ Wikipedia defines Securitization as the financial practice of
    pooling various types of contractual debt such as residential
    mortgages, commercial mortgages, auto loans or credit card debt
    obligations (or other nondebt assets which generate receivables) and
    selling their related cash flows to third party investors as
    securities, which may be described as bonds, pass-through securities,
    or collateralized debt obligations (CDOs). Investors are repaid from
    the principal and interest cash flows collected from the underlying
    debt and redistributed through the capital structure of the new
    financing. Securities backed by mortgage receivables are called
    mortgage-backed securities (MBS), while those backed by other types of
    receivables are asset-backed securities (ABS).
    ---------------------------------------------------------------------------
        In response to the pandemic, CRF in collaboration with
    other CDFIs developed and administered a series of Recovery
    Funds using limited liability companies (LLCs) and off-balance
    sheet structures such as Special Purpose Vehicles (SPVs) to
    purchase loans from CDFIs that make small-balance business
    emergency loans. Over the last 24 months, these Recovery Funds
    have deployed $250 million and have purchased over 5,000 loans
    from CDFIs with an average loan size between $40,000 to
    $70,000. Providing these smaller loans is a specialty for many
    CDFIs who reach smaller businesses owned by socially and
    economically disadvantaged persons or businesses located in
    low-to-moderate income communities.
        CRF and its partners established Recovery Funds in New
    York, Chicago, Washington, and California with a first-loss
    loss reserve of State and/or local funds. CRF helped establish
    a similar regional Recovery Fund covering 13 southeastern
    States with a privately funded loan loss reserve. We recently
    launched a similar fund in Minnesota which has credit
    enhancement from private funders. The off-balance sheet pooled
    loan structures serve the same purpose as a secondary market
    for CDFI lenders. CDFIs originating loans can sell up to 95
    percent of qualifying small-balance loans to the pooled vehicle
    thereby obtaining funds to continue making more loans.
        These pooled vehicles are the first step toward
    securitization and are critical because they free up space on
    CDFIs' balance sheets, thereby allowing the CDFIs to engage in
    additional lending. They have also been instrumental in
    introducing CDFIs to the practice of originating a standard
    loan product that can be purchased by the SPV and which
    provides improved liquidity. The next step is to take the
    pooled loan fund and use its assets to issue securities backed
    by the business loan cash flows and sell them to investors. Our
    research suggests that between $200-$250 million is the volume
    of loans needed to make a securitized transaction economically
    feasible so we have demonstrated that these pooled loan
    structures can reach the required scale.

    Q.6. What reforms do you believe should be made to the market
    for CDFI loans, what impacts would they have, and what role
    should Congress play in reforms?

    A.6. Through CRF's role in several Recovery Funds, including
    the Chicago Resiliency Fund, the California Rebuilding Fund,
    the New York Forward Fund, Southern Opportunity and Resilience
    Fund (SOAR), the Washington Flex Fund and the Minnesota
    Inclusive Growth Fund, that utilize an SPV structure, we have
    found that several aspects of this structure have laid the
    groundwork for providing a source of liquidity for CDFIs and
    paving the way to securitize small business loans. For example,
    the following criteria have made these Recovery Funds
    successful: (1) a standardized loan product with common
    eligibility criteria and terms; (2) a reasonable risk retention
    requirement mandating CDFI retain a portion of the loans they
    sell to the SPV; (3) the ability of the CDFIs to service or
    sub-service the loans they sell (i.e., retain servicing
    rights); (4) a common technology platform that matches small
    business borrowers with CDFIs offering appropriate loan or
    credit products; (5) a fund structure that brings private
    sector capital from impact lenders to support the purchase/
    acquisition of CDFI loans (or portions thereof); (6) access to
    coordinated, well-resourced business advisory services; (7) and
    a robust marketing strategy.
        SPV structures, like the Recovery Funds, using Federal
    resources (such as those authorized in Section 113 of the
    Riegle Community Development and Regulatory Improvement Act of
    1994) in a subordinate position to private capital (at the
    bottom of the capital stack), enables a scalable approach to
    aggregating and securitizing small business loans. However, we
    recommend a number of changes or modifications to Section 113
    [12 U.S.C. 4712] including (but not limited to): (1) include
    language to explicitly allow capital assistance to be used to
    raise resources to purchase loans from CDFIs; (2) reduce or
    eliminate the match requirement given magnitude of capital
    assistance awards; (3) eliminate the limitation on other
    assistance a capital assistance awardee may receive from the
    CDFI Fund; (4) reiterate that a capital assistance awardee need
    not be a CDFI; (5) increase the amount of capital assistance to
    at least $20 million per awardee; (6) provide exemptions from
    relevant Federal securities registration requirements (e.g.,
    Securities Act, Investment Company Act, and Investment Advisor
    Acts), the taxable mortgage pool rule when securitizing CDFI
    mortgages, as well as risk retention rules when securitizing
    loans originated by CDFIs (or provide alternative way to meet
    the risk retention requirement). Minimum requirements for
    organizations seeking capital assistance as well as selection
    criteria should also be reviewed and modified as needed for
    this unique role and scale of activity. Finally, there are
    accounting and tax rule changes regarding consolidation and tax
    exemption that present challenges to the securitization of CDFI
    loans that would need to be addressed but may be beyond the
    scope of Congress and a legislative solution.
        In addition, modifications to the Treasury Department's
    guidance for the SSBCI program in which CDFIs will play an
    important role could stimulate the development of secondary
    markets and securitization structures for CDFI loans. The SSBCI
    program offers a unique opportunity to utilize pooled loan
    structures to provide liquidity for CDFIs. Under Treasury
    policy guidance, an entity such as a CDFI must bear 20 percent
    or more of the risk of loss in any loan transaction and may not
    pool the risk of loss with other loans. The SSBCI rules require
    the losses on each loan backed by SSBCI funds to be reconciled
    and administered individually. (U.S. Department of the Treasury
    State Small Business Credit Initiative Frequently Asked
    Questions, p.3) A lender can economically administer the
    calculation of loan losses transaction-by-transaction when the
    lender is making relatively few loans of a significant size.
    However, this requirement is costly for a loan portfolio
    consisting of many small-balance loans which is precisely the
    case for CRF's Recovery Funds. Treasury's rule raises the
    administrative cost of operating a pooled loan fund, which is
    the key to the success of these Recovery Funds. Furthermore,
    Treasury's SSBCI requirements prevent CDFIs from using SSBCI
    dollars as first-loss capital at the bottom of the capital
    stack unless these funds are pari passu or matched on a one-to-
    one basis with private sector capital. As noted above, the SPV
    model can also advance the securitization of CDFI small
    business loans by aggregating loans until a reasonable volume
    has been acquired and they can be packaged into asset-backed
    securities. Modifications to Treasury's guidance could
    significantly improve the SPV model for both CDFIs originating
    and selling loans into this aggregation structure and for the
    eventual securitization of these assets. We hope such changes
    will be implemented.
        In terms of impacts, creating an ongoing source of
    liquidity through an SPV structure or something akin to the
    Paycheck Protection Program Liquidity Facility (PPPLF) at the
    Federal Reserve would allow CDFIs to significantly increase
    their lending activities by allowing them to pledge their loans
    and receive cash to continue to lend. However, CDFIs remain
    constrained by their balance sheets as they must raise
    additional equity to meet funders' requirements and protect
    against risk of loss associated with the loans on their balance
    sheets. Secondary markets using securitization of these loans
    provide CDFIs with a solution to both their balance sheet
    constraints and their need for liquidity without having to
    raise additional equity in a short time period.
        This would allow for more capital and credit to flow to
    small businesses especially, BIPOC-owned small businesses as
    well as those in low-income communities, rural areas, and
    Indian Country. Securitization of these loans would be the
    final step in reaching the capital markets where institutional
    and impact investors could invest in securities backed by these
    loans.
        Congress has a significant role to play in advancing
    policies that facilitate the development of secondary markets
    for CDFI small business and other loans, by providing resources
    to support research and innovation, removing legislative
    obstacles to aggregating and securitizing these assets, and
    convening experts to further this effort. Congress should also
    consider support for resources that build the capacity of CDFIs
    including, but not limited to, funding for the evaluation and
    adoption of technology that increases organizational efficiency
    and customer experience, and development of common platforms
    and tools that are accessible to all CDFIs. Finally, data
    collection and reporting remain a key challenge for CDFIs and
    impedes the ability to securitize CDFI loans. More and better
    data on CDFI loans would help rating agencies and investors
    better evaluate the true risk associated with these loans.

    Q.7. What are the technology needs of CDFIs, and should
    Congress consider supporting technology investments?

    A.7. CDFIs have significant technology needs to bring
    efficiency and scale to their operations. For example, CDFI
    small business lenders are looking for technology to assist
    them with customer acquisition, loan origination, loan
    servicing and portfolio monitoring, among other needs. CDFIs
    need assistance in evaluating, adopting, and on-boarding new
    technology systems. As an industry, CDFIs could reduce the
    costs of technology systems by agreeing to standardize their
    products and processes through a coordinated approach. CDFIs
    also need resources to invest more in software development and
    staff with the requisite technology skills. Could Federal funds
    be used to support a centralized technology/innovation hub that
    attracts the talent to build tools that all CDFIs can access?
    Relying on individual CDFIs to do this on their own impedes the
    industry's ability to scale and creates redundancy for small
    organizations that have limited R&D budgets.
        Congress should provide funding for CDFIs to adopt and/or
    upgrade their technology systems. It is incredibly hard for
    CDFIs to raise grant funds for infrastructure investments, yet
    funders are willing to provide more capital for loans. If CDFIs
    could implement efficient technology systems, they would be
    able to lend capital to their customers and communities more
    effectively and compete with online or fintech lenders who may
    offer predatory or abusive loan products.
        CRF has developed two technology solutions or platforms to
    ensure that small businesses are able to access safe,
    appropriate credit products and that CDFIs have the tools they
    need to serve their small business customers. Our
    Connect2Capital platform (C2C) is a marketplace where small
    business owners can be matched with credit products offered by
    CDFIs and similar responsible, mission-driven lenders that meet
    their needs. As of January 2022, $250 million in loans funded
    by CRF's partners has been facilitated by C2C, 74 percent of
    C2C loans have gone to businesses owned by Black Indigenous and
    other People of Color, women, members of the LGBTQ+ community,
    and/or Veterans. We also developed a software solution, known
    as SPARK, which provides a streamlined, seamless process to
    originate small business loans. Not only does SPARK allow
    lenders to quickly originate SBA and other business loans, but
    it also offers a user-friendly customer experience meeting
    businesses where they are. Increasingly, entrepreneurs are
    seeking loans online, and CDFIs must be able to offer them a
    competitive product and process that they can access over the
    internet or through a mobile device.
        When the CDFI Fund was established, the framers did not
    envision the technology needs of CDFIs in the future. We
    strongly believe Congress should support funding for
    technology.
        Furthermore, CDFIs (like CRF) that provide technology
    resources, such as C2C and SPARK, should be permitted to count
    these platforms as Development Services, a requirement for CDFI
    certification and which the Fund defines as `` . . . activities
    that promote community development and are integral to the
    Applicant's provision of Financial Products and Financial
    Services. Such services shall prepare or assist current or
    potential borrowers or investees to utilize the Financial
    Products or Financial Services of the Applicant.'' (CDFI Fund,
    Department of the Treasury, Revised Interim Rule, Federal
    Register, December 13, 2005, link) Including technology
    resources and platforms as Development Services would allow the
    Congress to fund these activities and enhance the ability of
    CDFIs to meet their primary mission of community development
    and significantly scale of their impact. CDFIs should be
    encouraged to innovate and build the robust ecosystem in which
    they conduct their lending activities. Technology tools
    exemplify the kind of innovation Congress should be fostering.

    Q.8. What steps, if any, should be taken to improve the
    diversity of leaders in the CDFI sector?

    A.8. CDFI leaders must reflect the communities and people they
    serve. Therefore, intentional efforts must be made to recruit
    BIPOC leaders as well as BIPOC staff at all levels of CDFI
    organizations. There is a transition taking place among leaders
    who created CDFIs 25 years ago and this provides a valuable
    opportunity to bring more diverse leadership to our industry.
        At CRF, we have taken specific steps to diversify our
    senior leadership and our staff with the opportunity for
    succession. Our board is majority minority, and this model of
    diversification will be replicated across all levels of the
    organization. We believe this approach will help bring more
    diverse leaders to the top of the organization. With a
    substantial number of CDFI loan fund founders moving on, we
    expect to see more BIPOC leaders at the helm of these
    organizations and sitting on their boards. The recent $9
    billion under the Emergency Capital Investment Program (ECIP)
    will strengthen the balance sheets of CDFI depository
    institutions and further enhance diverse leadership and lending
    in sector.

    Q.9. What do you believe to be the biggest challenge to CDFI
    certification for prospective CDFIs?

    A.9. As detailed in our written testimony, there are several
    challenges to CDFI certification for both prospective and
    existing CDFIs.

      A.  Navigating and understanding the certification process,
            requirements, technical language, and technology
            systems can be daunting especially for a small or new
            organization whose staff lacks prior knowledge of the
            CDFI regulatory framework and how it evolved. This
            challenge is exacerbated by two related factors--
            limited CDFI Fund staff resources due to underfunding
            and the long delays in processing and approving
            certification applications. The CDFI Fund recently
            issued two communications detailing their staff and
            workload challenges as well as the steps they are
            taking to address these problems; (See https://
            www.cdfifund.gov/node/1012651 and https://
            www.cdfifund.gov/impact/435). While some of these steps
            are encouraging, such as restructuring the Office of
            Certification, Compliance Monitoring and Evaluation
            into two departments, the statement in the January 31,
            2022, communication that ``The CDFI Fund will
            automatically reject any incomplete or inaccurate
            application'' raises concerns. The pandemic has imposed
            enormous burdens on the Fund staff, however without the
            definition of what constitutes an incomplete or
            inaccurate application, it is possible that applicants
            unfamiliar with the certification regulations and
            guidance and without the ability to hire a consultant
            may inadvertently submit an application with errors
            that is automatically rejected. Applicants are limited
            to making email ``service requests'' to the Fund's help
            desk and/or attending monthly Certification Conference
            calls. These options may work well for simple,
            straightforward questions however, they do not lend
            themselves to complicated or nuanced issues that
            applicants may encounter. Resources should be provided
            to the Fund to offer a robust call center or help desk
            with staff who have deep knowledge about the details
            and intricacies of CDFI certification.

      B.  Target Market designation and expansion present
            significant challenges for existing CDFIs, especially
            as the world has changed dramatically since the Fund
            was established in 1994. As described in our written
            testimony for the January 5th hearing, the advent of
            technology in delivering credit to small business
            owners has altered the financial services landscape
            forever. If CDFIs are to compete and offer safe credit
            products to entrepreneurs, they must be able to meet
            their customers where they are in terms of geography
            and ease of user experience. CDFIs need to be able
            offer their loan products across larger geographic
            areas, including on a nationwide scale, and they need
            to deliver their products through technology channels
            that provide quick response times and a streamlined
            underwriting and approval process. The experience of
            making Paycheck Protection Program (PPP) loans provided
            a clear illustration of the kind of lending CDFIs will
            be called upon to do in the future. The CDFI Fund needs
            to provide a process by which existing CDFIs can expand
            or modify their approved Target Markets without having
            to re-apply for certification. This is burdensome for
            both the CDFI and the Fund staff. In addition, CDFIs
            that have the capacity to serve Investment Areas (IA)
            across the country should be granted a National IA
            Target Market to which they are accountable through a
            governing or advisory board.

      C.  CDFIs are seeking guidance and leadership from the CDFI
            Fund in the area of Target Market verification. As
            stipulated in guidance, CDFIs must direct 60 percent of
            their lending (by volume and dollar amount) to their
            approved Target Markets. To confirm that they are
            meeting this requirement, CDFIs use the Fund's mapping
            service to determine if a loan is located in an IA
            which the CDFI has been approved to serve. However, for
            CDFIs with Low Income Targeted Population (LITP) Target
            Markets, it is unclear what types of verification
            methods they can use to qualify or demonstrate that
            their loans are serving this type of Target Market. In
            the absence of clear guidance, CDFIs have relied on
            proxies (such as the Low-Income Housing Tax Credit,
            eligibility for Medicaid, and free and reduced
            lunches), to verify that loans are serving low-income
            people as well as developing their own verification
            methods, particularly for loans to small businesses
            where the owner is not a low-income individual, but the
            business is providing employment to low-income people.
            In a Notice and Request for Public Comment published in
            the Federal Register on May 7, 2020, the CDFI Fund
            proposed a default proxy method using a Census Block
            Group geocoder (which has not yet been made available)
            to determine if loans may be designated as LITP.
            Without the ability to test this new geocoder, CDFIs
            are very concerned that requiring them to use this
            method could invalidate past loans or restrict their
            ability to serve small businesses or consumers who
            otherwise would qualify under their current
            verification methods. We have called upon the Fund to
            establish a process by which CDFIs can present their
            existing verification methods for approval by the Fund
            to ensure they can continue to serve low-income
            customers who may fall outside this new geocoding
            system, especially those in rural or sparsely populated
            areas.

      D.  Lastly, as CDFIs are becoming larger and more
            sophisticated, they are establishing holding company
            structures with affiliates and subsidiaries. Having to
            certify each and every affiliate or subsidiary
            separately is both time consuming and labor intensive.
            A more holistic approach to certifying affiliates and
            subsidiaries would streamline the process for
            applicants as well as for Fund staff. One issue that
            should be addressed as part of certifying affiliates
            and subsidiaries is the requirement that they must
            already have made or be making loans in a requested
            Target Market. This requirement makes it difficult for
            a new entity to be certified in a timely fashion. This
            ``catch 22'' makes it harder for the affiliate to begin
            lending or investing activities and therefore
            certification must be anticipated well in advance
            (perhaps a year or more). Creating a prospective rather
            than a retrospective approach to certifying affiliates
            and subsidiaries of existing CDFIs that need to launch
            their lending or investing activities quickly would be
            enormously beneficial. The certification requirements
            for Bond Guarantee Program participants offer an
            example of how this could be done. In the BGP, the CDFI
            Fund permits a CDFI's Affiliate to rely on the
            Controlling CDFI's activity or track record to meet the
            financing entity requirement for participation as an
            Eligible CDFI under the CDFI Bond Guarantee Program.
            This approach could serve as a model for more broadly
            certifying affiliates and subsidiaries of existing
            CDFIs.

    Q.10. How has the CDFI Fund's guidance and technical assistance
    (e.g., webinars, meetings, user guides, etc.) been helpful to
    you? How do you believe the CDFI Fund can improve outreach and
    guidance?

    A.10. Yes, these convenings and materials have been helpful but
    are not sufficient. More technical assistance is needed. Often
    a new organization seeking to become certified or an existing
    CDFI with a question or a concern needs to have a conversation
    with Fund staff about a technical or nuanced issue. We
    understand the CDFI Fund staff have been stretched thin while
    designing, managing, and deploying an enormous amount of
    funding over the past 2 years. Nonetheless, we are concerned
    that if there are no options for directly engaging with Fund
    staff other than through a service request (email
    communication) then many CDFIs will not be able to access the
    information, oral guidance, and advice they need to participate
    in CDFI Fund programs. This would be a step backward as the
    hallmark of the CDFI industry has been the ability to interact,
    support, and learn from the staff at the Fund and thus advance
    its mission.
                                    ------

                   RESPONSES TO WRITTEN QUESTIONS OF
                   SENATOR MENENDEZ FROM FRANK ALTMAN

    Q.1. The Build Back Better Act currently being debated by
    Congress contains many crucial investments in community
    development. For instance, the House-passed version of the bill
    provides $2.2 billion dollars to eligible institutions,
    including CDFIs, to assist first-time, first generation
    homebuyers. It also contains $3 billion dollars for these
    institutions for community facilities and other housing and
    civic infrastructure.
        Could you describe what kind of impact these programs could
    have in the communities your institution serves?

    A.1. As a Qualified Issuer (QI) in the CDFI Bond Guarantee
    Program (BGP), we would welcome these resources for the
    communities we serve directly and through the BGP and New
    Markets Tax Credit (NMTC) programs. The NMTC program is
    routinely oversubscribed due to the highly competitive nature
    of the program. When we receive allocations, there are so many
    worthy projects, and we are only able to fund a small fraction
    of the potential pipeline. Similarly, the CDFIs on whose behalf
    we issue bonds under the BGP--are on the front lines providing
    resources to underserved communities and have limited sources
    of long-term, patient funding. They must make difficult
    decisions between which projects to fund and which ones they
    are not able to support. More resources such as the $2.2
    billion in the House passed version of the Build Back Better
    bill would allow CDFIs to have multiple sources of funding to
    address the financing needs in urban, rural, and Native
    communities ravage by the pandemic and looking to build their
    community and civic infrastructure.
        One example of a program that assisted first-time, first-
    generation homebuyers and would have benefited from capital
    like that which would be available under the Build Back Better
    Act (BBA) is the Detroit Home Mortgage Program (DHM). This
    program, which CRF helped to launched in 2016, was a
    collaborative effort between local banks, foundations, CDFIs,
    the City of Detroit, and community organizations to address
    financial gaps in appraisals so that borrowers could afford to
    buy, renovate, and live in a home in the City of Detroit. DHM
    was designed as a temporary market intervention to increase the
    number of mortgages throughout the city by laying the
    groundwork for real, negotiated appraisals in real estate
    transactions. DHM served as a catalyst by allowing buyers and
    sellers to negotiate low appraisals to determine the true value
    of the home. As a result, neighborhoods throughout the City of
    Detroit saw increases in the availability of mortgages.
        If risk capital, such as what would be provided through the
    BBA, had been available in 2016, DHM could have launched much
    faster and on a larger scale. As of October 2021, the program
    closed 244 mortgages and spurred at least another 144 in other
    lending from our originating partners. Detroit has seen
    mortgage market growth every year since the inception of DHM.
    Mortgage lending in the city is almost back to prefinancial
    crash levels with realtors reporting a total of 2,180 mortgages
    which is very close to being a healthy market again. The last
    time there were more than 2,000 mortgages in Detroit was 2007.
    With borrowers choosing where to live, DHM reached more than
    half of all the neighborhoods in Detroit, providing a
    catalyzing effect for increased lending throughout the city.
    DHM's impact has also been sustained during the COVID-19
    pandemic, which is very important to know that there will be a
    lasting effect on the city. There have been no defaults for any
    of the mortgages that are in the DHM fund. While DHM had its
    intended impact, there are many postindustrial cities that
    could benefit from a similar program if capital was available
    to support this type of intervention allowing many more
    families to become homeowners and revitalizing cities like
    Detroit.
        The $3 billion dollars available to institutions, like
    CDFIs, for community facilities and other housing and civic
    infrastructure would complement and augment existing financing
    tools and programs, such as the NMTC and the Bond Guarantee
    programs. The latter, as we noted in our written testimony, has
    been challenging for smaller and medium-sized CDFIs to access
    due to the $100 million minimum bond threshold requirement.
    This funding from BBA would help CDFIs reach smaller projects
    that often are not cost effective. Having access to resources
    like this could be catalytic attracting private sector
    financing and stimulating neighborhood revitalization through
    the development and rehabilitation of community facilities as
    well as other critical infrastructure projects.
                                    ------

           RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNOCK
                           FROM FRANK ALTMAN

    Q.1. Would you please describe your experience working with the
    Paycheck Protection Program? How did your members leverage
    their experience as a CDFI to get the relief out to communities
    you serve?

    A.1. CRF was proud to support small businesses during the
    pandemic by delivering Paycheck Protection Program (PPP) loans
    to underserved borrowers across the country. We leveraged two
    proprietary technology platforms: (1) Connect2Capital (C2C)
    which matches small business borrowers with an appropriate loan
    product (in this case, the PPP loan) and SPARK, a software
    solution that allows lenders to originate loans (including a
    customized process for PPP loans) based on the characteristics
    of the credit product. CRF worked closely with more than 47
    CDFI and community-based partners nationwide to ensure that
    their small business customers and nonprofit organizations,
    particularly small and economically disadvantaged, businesses
    and those that are BIPOC-owned, were able to obtain a PPP loan.
    Many of these borrowers were very small and were not being
    served by banks. Through CRF's national network of community-
    based partners, our technology platforms, and our dedicated
    staff, we were able to make nearly 4,500 loans and for a total
    of $700 million with a median loan size of just $21,000. Most
    importantly, these loans helped to save more than 68,000 jobs.

    Q.2. What do you believe is driving the gap of CDFI investments
    between urban and rural communities? What are the long-term
    benefits of making sure rural counties are receiving their fair
    share of CDFI investments?

    A.2. It is unclear what is driving the gap of CDFI investments
    between urban and rural communities, but we need to ensure all
    communities receive a fair share of resources. CDFIs are not
    present in all communities. In addition, it may be more costly
    to serve rural communities as it is critical to build trusted
    relationships with local partners (such as a development
    finance agency) or be present in the community. Rural
    ecosystems are different from those in urban communities.
    Nonetheless rural areas can be better served as evidenced by
    the New Markets Tax Credit program where 20 percent of the
    investments must be made in rural communities. In some cases,
    NMTC investments in rural communities have exceeded this level.
        Early in our history, CRF undertook a rural initiative
    across 14 States to provide access to capital to businesses and
    nonprofits thousands of local communities. It was a significant
    effort, and an essential aspect was having a strong partner, in
    this case the foundation of U.S. West, then a major
    telecommunications firm serving this region. More private-
    public partnerships could increase CDFI investments in rural
    counties.
        In terms of CRF's current lending activities, we serve
    rural areas through several channels. With our small business
    products (including both SBA 7(a) and non-SBA loans), 18
    percent of our total dollar volume and 16 percent of the total
    number of loans have been made to businesses in rural areas
    since 2012. Using New Markets Tax Credits, 36 percent of the
    dollar amount and 29 percent of the number of financings have
    been directed to rural businesses. We also originated $700
    million in Paycheck Protection Program (PPP) loans of which 10
    percent of the dollar amount and 17 percent of the total number
    of loans went to organizations in rural areas.
        To specifically address the gap in CDFI investments in
    rural areas, CRF recently launched a joint venture with Conduit
    Capital, a leading impact investment firm to create RuralWorks,
    a Rural Business Investment Company (RBIC, license pending),
    with the mission to increase economic mobility, generate
    community wealth, and build a more equitable and resilient
    rural economy. RuralWorks provides integrated capital to
    growth-oriented businesses operating in rural communities. By
    creatively engaging a range of local and national resources and
    partners, RuralWorks creates value and outcomes rooted in local
    people, places, and businesses.

    Q.3. Minority-owned CDFI Fund awardees are experiencing asset
    growth at a slower pace than their peers, with little to no
    progress on closing the asset gap. What do you believe is
    driving this gap and how are communities that your organization
    serves hurt by its persistence?

    A.3. Lack of access to equity capital is one factor that may be
    driving the gap in asset growth minority-owned CDFI Fund
    awardees are experiencing when compared to awardees that are
    not minority owned. To address this gap, Congress provided $9
    billion through The Emergency Capital Investment Program (ECIP)
    as part of the Consolidated Appropriations Act of 2021. This
    program targeted funding to CDFIs and Minority Depository
    Institutions (MDIs) by providing loans, grants, and forbearance
    for small businesses, minority-owned businesses, and consumers,
    especially in low-income and underserved communities, that may
    be disproportionately impacted by the economic effects of the
    COVID-19 pandemic. Treasury set aside $2 billion for CDFIs and
    MDIs with less than $500 million in assets and an additional $2
    billion for CDFIs and MDIs with less than $2 billion in assets.

    Q.4. Would you speak to strategies to target Federal
    investments to catalyze and accelerate holistic community
    revitalization, beyond just putting roofs over folks' head? How
    can we leverage Federal dollars to ensure access to quality
    education, safe and affordable housing, as well as access to
    health care?

    A.4. This is an important topic and in our view, this is
    exactly what the Build Back Better legislation was intended to
    do--stimulate holistic revitalization across all the key
    elements that make up the social determinants of health by
    providing funding for affordable housing, early childhood
    education, more affordable post-secondary education (in an
    earlier version of the bill), addressing the dangers of climate
    change, reducing the high cost of prescription drugs and
    hearing aids, as well as other resources that will improve the
    quality of life for residents of distressed areas. The
    bipartisan Infrastructure Bill that Congress passed will
    improve the built environment by repairing our aging roads and
    bridges as well as bringing broadband and internet access to
    communities across the country that lack connectivity. These
    two key legislative initiatives (understanding that the future
    of the Build Back Better bill is uncertain) are the blueprint
    for an effective strategy for targeting Federal investments
    that could successfully catalyze and accelerate holistic and
    mutually reinforcing community revitalization particularly in
    underserved and communities of color.
                                    ------

             RESPONSES TO WRITTEN QUESTIONS OF CHAIR SMITH
                           FROM LAKOTA VOGEL

    Q.1. What steps, if any, should be taken to improve the
    diversity of leaders in the CDFI sector?

    A.1. Response not received in time for publication.

    Q.2. What do you believe to be the biggest challenge to CDFI
    certification for prospective CDFIs?

    A.2. Response not received in time for publication.

    Q.3. How has the CDFI Fund's guidance and technical assistance
    (e.g., webinars, meetings, user guides, etc.) been helpful to
    you? How do you believe the CDFI Fund can improve outreach and
    guidance?

    A.3. Response not received in time for publication.
                                    ------

                   RESPONSES TO WRITTEN QUESTIONS OF
                   SENATOR MENENDEZ FROM LAKOTA VOGEL

    Q.1. The Build Back Better Act currently being debated by
    Congress contains many crucial investments in community
    development. For instance, the House-passed version of the bill
    provides $2.2 billion dollars to eligible institutions,
    including CDFIs, to assist first-time, first-generation
    homebuyers. It also contains $3 billion dollars for these
    institutions for community facilities and other housing and
    civic infrastructure.
        Could you describe what kind of impact these programs could
    have in the communities your institution serves?

    A.1. Response not received in time for publication.
                                    ------

           RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNOCK
                           FROM LAKOTA VOGEL

    Q.1. Your organization is unique in both geography and the
    population being served. What challenges do you face on a day-
    to-day serving your community, and where are you finding
    success?

    A.1. Response not received in time for publication.

    Q.2. What types of challenges has your organization experiences
    accessing CDFI Fund awards or other assistance from the CDFI
    Fund? What further resources from the Fund do you think would
    enable you to better serve your community?

    A.2. Response not received in time for publication.

    Q.3. Would you speak to strategies to target Federal
    investments to catalyze and accelerate holistic community
    revitalization, beyond just putting roofs over folks head? How
    can we leverage Federal dollars to ensure access to quality
    education, safe and affordable housing, as well as access to
    health care?

    A.3. Response not received in time for publication.
                      GAO REPORT: FEDERAL HOME LOAN BANKS

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]