[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
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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\
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\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\
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\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\
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\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
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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.
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\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]