[Congressional Record Volume 140, Number 123 (Wednesday, August 24, 1994)]
[House]
[Page H]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: August 24, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                  NEW HORIZONS FOR AFFORDABLE HOUSING

 Mr. D'AMATO. Mr. President, the general decline in credit 
availability for multifamily housing since the Tax Reform Act of 1986 
has fallen with special force on the low- and moderate-income sector. 
Longstanding obstacles to financing apartment buildings have been 
exacerbated by a number of factors, including a decline of traditional 
thrift industry lenders, tightening credit and bank capital adequacy 
standards, and, most importantly, the deep real estate recession, which 
has yet to be fully and uniformly reversed throughout the country.
  The structure of most low- and moderate-income housing markets makes 
the provision of credit a daunting challenge in even the best of 
circumstances. Most transactions are small, and many borrowers are 
unsophisticated with weak or unsubstantiated financial statements. New 
construction or rehabilitation financing for these transactions would 
be complex enough, but it is made more so, in many instances, by the 
necessity for governmental assistance programs to bridge the gap 
between housing cost affordability. This assistance can take many 
forms: tax credits, local tax abatements and exemptions, rental 
subsidies, zoning variances, et cetera. Many transactions, furthermore, 
will include not one, but several public enhancements. Typically, each 
has its own requirements and restrictions, and separate government 
agencies are responsible for their administration.
  The private-sector credit system must interact with this complicated 
market, while, at the same time, evaluating all the usual market 
considerations. Construction lenders must account for interest rate 
risks for their take-out financing, lest upward fluctuations in long-
term rates during construction make the project unaffordable at the 
time of completion. Permanent lenders must be sensitive to adverse 
social or economic conditions which may have a disproportionate effect 
on low- and moderate-income tenancy. This population is often 
particularly vulnerable during times of economic downturn.
  Given these difficulties, much of this market is underserved. 
Moreover, with the consolidation of the banking industry, knowledge of 
local markets has weakened, making it more difficult to accommodate 
these unique community credit needs. Yet the need for this type of 
financing is clear. According to the ``State of the Nation's Housing,'' 
and other reports, the supply and condition of rental housing is 
inadeaquate, particularly in our inner cities.
  In response, over the past decade and more, a number of specialized 
lending organizations have been established nationally to deal with the 
decline of credit resources in our low- and moderate-income 
communities. These organizations have various forms; they are bank 
community development companies, loan consortia, local housing 
agencies, community development loan funds, et cetera. Their emergence 
has established for this neglect market a credit infrastructure that, 
while not perfect, has promise for serving much greater needs.
  The best of these organizations have adopted various strategies to 
deal with the structural problems in their respective marketplaces. In 
New York City, for example, the Community Preservation Corp. [CPC], a 
not-for-profit corporation organized by 50 commercial banks, savings 
institutions and insurance companies, has worked with government to 
create a one-stop shop for small property owners to receive their 
private financing and public support for certain types of 
rehabilitation projects. Here, arrangements with local government are 
worked out in advance for the approvals necessary to carry the projects 
through to completion.
  The result has been broad participation in program destined to 
preserve affordable housing at very low costs. CPC, since being founded 
in 1974, has lent over $1 billion of public and private funds for the 
building and renovation of over 35,000 housing units--with virtually no 
losses. CPC's efforts have been key to rebuilding large areas of New 
York City. Washington Heights-Inwood in northern Manhattan, a community 
the size of Richmond, VA, was reinvigorated over an 8-year period as 
CPC financed more than 7,500 units of renovated housing--more than 10 
percent of the housing stock. In Harlem, 3,800 units are either under 
construction or have been completed, and in the South Bronx, 6,100 
units have been financed.
  Recently, CPC sponsored a tour of these neighborhoods for the staff 
of the New York congressional delegation to see how this cooperative 
approach to low-cost, multifamily development can work. It is important 
to note that the rehabilitation projects are accomplished without 
altering the ethnic or economic mix of a given neighborhood. In other 
words, this is neighborhood revitalization, not gentrification. As 
these inner-city housing units are renovated, retail and other economic 
development follows.
  The Congress took an important step in furthering this type of 
private-public partnership through final passage of the Riegle 
Community development Banking and Financial Institutions Act of 1994. 
Not only on the community development side, but also as it relates to 
incentives for business loan securitization, this legislation should 
spur greater interest in the type of lending activity which CPC and 
other specialized multifamily lenders pursue.
  The common problem that all of these specialized lenders face is 
access to long-term credit markets. Banks and thrift institutions are 
reluctant to hold in portfolio multifamily loans due to high capital 
requirements and mismatches with their shorter term liabilities. It 
follows that the continued success and future growth of these types of 
companies will be dependent, in large part, on their ability to 
securitize their loan production and sell the resulting securities in 
the secondary market. This brings the recourse aspect of the Federal 
banking agencies' risk-based capital rules into play.
  Section 350 of the Riegle Community Development and Regulatory 
Improvement Act, recently approved by Congress, directs the bank and 
thrift regulatory agencies to review current risk-based capital 
requirements with respect to assets sold with recourse and, consistent 
with safety and soundness, promulgate regulations that better reflect 
the exposure of an insured depository institution to credit risk from 
transfers of assets with recourse. This section goes on to state that 
unless necessary for purposes of safety and soundness, the new 
regulations should not require an amount of risk-based capital for 
these assets that exceeds the maximum amount of recourse for which such 
institution is contractually liable under the recourse agreement. Logic 
dictates that similar risk-based capital treatment should be given to 
the acquisition of a subordinated interest in a loan or pool of loans 
by an insured depository institution, to the extent that such 
subordinated interest represents the same risk to the institution.
  As with other problems requiring vast amounts of private sector 
financing to complement scarce public resources, the rebuilding of the 
Nation's inner-city neighborhoods will depend on the ability to deliver 
capital to the point of its most efficient use. Insofar as affordable 
housing is concerned, that point is centered on those who can cost-
effectively build and renovate housing for low- and moderate-income 
families. I congratulate CPC for its substantial accomplishments over 
the last 20 years, and its plans for even greater future 
achievements.

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