[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
COMMUNITY DEVELOPMENT FINANCIAL
INSTITUTIONS (CDFIs): THEIR
UNIQUE ROLE AND CHALLENGES SERVING
LOWER-INCOME, UNDERSERVED,
AND MINORITY COMMUNITIES
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
MARCH 9, 2010
__________
Printed for the use of the Committee on Financial Services
Serial No. 111-106
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56-770 WASHINGTON : 2009
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HOUSE COMMITTEE ON FINANCIAL SERVICES
BARNEY FRANK, Massachusetts, Chairman
PAUL E. KANJORSKI, Pennsylvania SPENCER BACHUS, Alabama
MAXINE WATERS, California MICHAEL N. CASTLE, Delaware
CAROLYN B. MALONEY, New York PETER T. KING, New York
LUIS V. GUTIERREZ, Illinois EDWARD R. ROYCE, California
NYDIA M. VELAZQUEZ, New York FRANK D. LUCAS, Oklahoma
MELVIN L. WATT, North Carolina RON PAUL, Texas
GARY L. ACKERMAN, New York DONALD A. MANZULLO, Illinois
BRAD SHERMAN, California WALTER B. JONES, Jr., North
GREGORY W. MEEKS, New York Carolina
DENNIS MOORE, Kansas JUDY BIGGERT, Illinois
MICHAEL E. CAPUANO, Massachusetts GARY G. MILLER, California
RUBEN HINOJOSA, Texas SHELLEY MOORE CAPITO, West
WM. LACY CLAY, Missouri Virginia
CAROLYN McCARTHY, New York JEB HENSARLING, Texas
JOE BACA, California SCOTT GARRETT, New Jersey
STEPHEN F. LYNCH, Massachusetts J. GRESHAM BARRETT, South Carolina
BRAD MILLER, North Carolina JIM GERLACH, Pennsylvania
DAVID SCOTT, Georgia RANDY NEUGEBAUER, Texas
AL GREEN, Texas TOM PRICE, Georgia
EMANUEL CLEAVER, Missouri PATRICK T. McHENRY, North Carolina
MELISSA L. BEAN, Illinois JOHN CAMPBELL, California
GWEN MOORE, Wisconsin ADAM PUTNAM, Florida
PAUL W. HODES, New Hampshire MICHELE BACHMANN, Minnesota
KEITH ELLISON, Minnesota KENNY MARCHANT, Texas
RON KLEIN, Florida THADDEUS G. McCOTTER, Michigan
CHARLES A. WILSON, Ohio KEVIN McCARTHY, California
ED PERLMUTTER, Colorado BILL POSEY, Florida
JOE DONNELLY, Indiana LYNN JENKINS, Kansas
BILL FOSTER, Illinois CHRISTOPHER LEE, New York
ANDRE CARSON, Indiana ERIK PAULSEN, Minnesota
JACKIE SPEIER, California LEONARD LANCE, New Jersey
TRAVIS CHILDERS, Mississippi
WALT MINNICK, Idaho
JOHN ADLER, New Jersey
MARY JO KILROY, Ohio
STEVE DRIEHAUS, Ohio
SUZANNE KOSMAS, Florida
ALAN GRAYSON, Florida
JIM HIMES, Connecticut
GARY PETERS, Michigan
DAN MAFFEI, New York
Jeanne M. Roslanowick, Staff Director and Chief Counsel
C O N T E N T S
----------
Page
Hearing held on:
March 9, 2010................................................ 1
Appendix:
March 9, 2010................................................ 43
WITNESSES
Tuesday, March 9, 2010
Barr, Hon. Michael S., Assistant Secretary for Financial
Institutions, U.S. Department of the Treasury.................. 3
Barrera, Janie, President and Chief Executive Officer, ACCION
Texas-Louisiana................................................ 28
Bridges, Dorothy, President and Chief Executive Officer, City
First Bank of DC............................................... 30
Bynum, William, President and Chief Executive Officer, Enterprise
Corporation of the Delta....................................... 25
Fiddler, Tanya, Vice President of Programs and Operations, First
Nations Oweesta Corporation, Cheyenne River Reservation........ 31
Gambrell, Donna J., Director, Community Development Financial
Institutions (CDFI) Fund....................................... 5
Kennedy, Judith A., President and Chief Executive Officer,
National Association of Affordable Housing Lenders (NAAHL)..... 33
Moncrief, L. Ray, Executive Vice President and Chief Operating
Officer, Kentucky Highlands Investment Corporation............. 27
APPENDIX
Prepared statements:
Carson, Hon. Andre........................................... 44
Barr, Hon. Michael S......................................... 45
Barrera, Janie............................................... 49
Bridges, Dorothy............................................. 52
Bynum, William............................................... 63
Fiddler, Tanya............................................... 73
Gambrell, Donna J............................................ 90
Kennedy, Judith A............................................ 98
Moncrief, L. Ray............................................. 108
Additional Material Submitted for the Record
Gambrell, Donna:
Written responses to questions posed by Representative Bachus
during the hearing......................................... 117
Community Development Financial Institutions--Activity in
Select House Financial Services Committee Member Districts. 118
Community Development Financial Institutions Fund, U.S.
Department of the Treasury, Responses to Panelist's
Proposals, April 16, 2010.................................. 165
Financial Services Provided by Community Development
Financial Institutions in Latino Communities............... 177
COMMUNITY DEVELOPMENT FINANCIAL
INSTITUTIONS (CDFIs): THEIR
UNIQUE ROLE AND CHALLENGES SERVING
LOWER-INCOME, UNDERSERVED,
AND MINORITY COMMUNITIES
----------
Tuesday, March 9, 2010
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 2 p.m., in room
2128, Rayburn House Office Building, Hon. Barney Frank
[chairman of the committee] presiding.
Members present: Representatives Frank, Waters, Watt, Moore
of Kansas, Baca, Miller of North Carolina, Scott, Green,
Cleaver, Carson, Childers, Adler; Bachus, Biggert, Jenkins, and
Lance.
The Chairman. The hearing will come to order. This is a
hearing that is mostly about pretty good news, so that is why
not many people are here. We are better at complaining than
praising. And the media also pays more attention to criticism
than to good words.
But the Community Development Financial Institutions
Program is an example of something that works well. And, in
particular, there have been suggestions that when the Federal
Government tries to intervene to help lower-income communities
and individuals in various ways, that somehow causes problems.
The record, I think, is very clear that is not the case. If it
is done well, this is very constructive.
And we are, therefore, pleased to have before us today two
panels: first, those from the Administration; and second, a
group of practitioners. I look forward to hearing from them.
The gentleman from Alabama is now recognized for his
opening statement.
Mr. Bachus. I thank the chairman.
I appreciate you holding a hearing on the CDFI Fund, and I
appreciate our witnesses being here.
The program dates back, or my interest in the program dates
back to my days as chairman of the committee's Oversight and
Investigations Subcommittee in the late 1990's, when the
Oversight Subcommittee led an investigation that uncovered
serious irregularities and conflicts of interest in the Fund's
process for awarding grants. And that investigation resulted in
the resignation of the agency's two top officials and led
Treasury to adopt a number of reforms to address the abuses
identified by the subcommittee.
While I am confident that the fund is now being operated in
a far more professional and transparent manner than was the
case back then, I still have concerns about the program's
effectiveness that I hope can be explored in today's hearing.
Community Development Financial Institutions are a source
of subsidized capital to communities that face difficulties
attracting funds for economic development. But the subsidy that
the government provides is not free. We need to ensure that the
CDFI Fund program is properly administered so that funds are
provided to individuals and entities that both have productive
uses for it and would otherwise not have access to financing.
CDFIs have a proven track record of providing economic
development dollars to underserved communities. According to
the Treasury Department, CDFI initiatives created or maintained
more than 70,000 full-time jobs. This success should not,
however, lead to looser standards. I hope our witnesses today,
particularly the Treasury Department, will be able to be
discuss the operational improvements that can be implemented as
the CDFI Fund program evolves.
Finally, even though the program has had some successes in
promoting capital investment in underserved communities, it
would be wrong to redirect TARP money to this program. TARP was
established to stabilize the financial system in a time of
extreme market disruption. Given the alarming deficits that the
country is running, the extraordinary measures that were taken
during the financial crisis should be wound down as soon as
practical, and that includes TARP.
And I am sure you all heard Doug Elmendorf, the CBO
Director--I shouldn't go off the record, should I--say
yesterday that we were in unfamiliar territory as far as the
debt was involved and the deficit, so that ought to be a wake-
up call to all of us. And of course, Federal Reserve Chairman
Bernanke testified to us just in the past weeks that our debt
and deficit was unsustainable. So, given these alarming
deficits that the country is running, the extraordinary
measures that were taken during the financial crisis should be
wound down, and that includes TARP. It is time for the
government to get out of the private market and let American
businesses innovate and spur economic growth without the fear
of government intervention.
I yield back the balance of my time.
The Chairman. The gentleman from Georgia is recognized for
2 minutes.
Mr. Scott. Thank you, Mr. Chairman.
This is indeed a timely hearing. With this very devastating
economic dilemma we are in, minority communities are profoundly
impacted, probably 2 to 3 times as devastating as the remainder
of the economy is doing. And so we know that the economy is
really going through some woes, so you can imagine what the
minority communities are going through.
The one good thing about the CDFIs is this: You are
targeted. You are purposeful at a time we need targeted,
purposeful, focused resources targeting these minority
communities. In my own State of Georgia, we have 18 of you
doing a wonderful job, and 67 percent of that impact is
impacting in the urban areas, 44 percent of that impacting
minorities. I think this is crucial because the timing is
important.
The Treasury Department, from my information, is looking to
reauthorize the CDFIs, so it is very important that we have
this hearing, that we hear from you what you are doing, how
well you are doing, what more you can do, how many more
resources you need. And it is also important to share with us
how you measure your success, so that there can be no argument.
You can say you are successful, but we need to know how you
measure that. What determines your success, and what would it
be like if you were not there helping these communities? What
would it be like for them?
Because the history of it is that these CDFIs came about
because of the outmigration of White communities. These
communities became African American in many cases, and when the
White community left, the banks left, and they were
underserved. You came in, and you filled that void.
This is a very important hearing, Mr. Chairman. Thank you
very much. I yield back the balance of my time.
The Chairman. The gentleman from Texas is recognized for 2
minutes.
Mr. Green. Thank you, Mr. Chairman.
I thank the witnesses for appearing. And I am especially
grateful to the President. President Obama has made a request
for an additional $250 million in appropriations for the CDFI
Fund for 2011. And I want to compliment the President for
making such a request. It is obvious that these institutions
have served us well, served us well, by the way, at a time when
many other institutions were not serving us well. And I think
that bodes well for what the institutions represent.
They do this, many times, on a shoe-string budget, in
communities that are thought to be such that they cannot afford
loans, cannot repay loans. But they continue to defy the odds,
and they continue to make a difference in the lives of real
people. I compliment the President and look forward to this
hearing today. I have many questions that I would like to ask
about the CDFIs, and I look forward to your answers.
Thank you, Mr. Chairman. I yield back the balance of my
time.
The Chairman. I thank the gentleman.
The Chairman. And we will now begin.
Our witnesses for the first panel are: Michael Barr, who is
the Assistant Secretary for Financial Institutions at the
Department of the Treasury; and Donna Gambrell, who is the
Director of the CDFI Fund. Mr. Secretary?
STATEMENT OF THE HONORABLE MICHAEL S. BARR, ASSISTANT SECRETARY
FOR FINANCIAL INSTITUTIONS, U.S. DEPARTMENT OF THE TREASURY
Mr. Barr. Thank you very much, Mr. Chairman, Ranking Member
Bachus, and members of the committee.
This committee has a long and bipartisan history of support
for the Community Development Financial Institutions Fund and
CDFIs across the country. I want to thank you for the
opportunity to testify today about the role of CDFIs in growing
small businesses, in creating jobs, and in assisting economic
recovery in distressed communities across the United States.
As we emerge from the worst economic crisis in generations,
the Administration is focused on spurring greater job growth,
ensuring that the recovery is firmly established. CDFIs are a
critical and important piece of our broader commitment to an
inclusive recovery. CDFIs provide capital, credit, and
financial services to hard-to-reach communities and underserved
populations. In both rural and urban America, they assist
entrepreneurs and small businesses that are the vital engines
of growth.
In today's economic climate, CDFIs' support to small
business is more critical than ever. CDFIs report providing
financing to over 10,000 businesses and over 1,600 commercial
real estate properties in 2008. CDFIs also reported that they
helped to create or maintain over 70,000 full-time jobs in that
period. CFDIs are also able to reach underserved communities
through innovative, responsible, affordable financial products
and services. And the CDFI Fund has provided CDFIs with the
necessary capital to spur innovation in the sector.
Take the example of one CDFI Fund award recipient, the
North Side Community Development Credit Union in Chicago. North
Side has developed an affordable small-dollar consumer loan
which has saved community residents over $5 million compared to
the alternatives.
The current economic environment has strained the resources
of many CDFIs. They have also, at the same time, seen a
dramatic increase in requests for their lending services, as
other sources of credit have dried up. However, CDFIs have
faced constraints in meeting that increased demand, in
particular, a decrease in available funding from their primary
funding sources. We strongly believe that further support is
needed for CDFIs to help distressed communities manage through
the economic downturn.
We have already worked with this committee, with all of
you, to increase support for CDFIs through the Recovery Act,
under which the Fund disbursed $98 million in awards within 160
days of enactment. That Act also provided the Department with
an additional $1.5 billion in New Markets Tax Credit allocation
authority for both Fiscal Years 2008 and 2009. We have recently
announced a new program under EESA, the Community Development
Capital Initiative, to extend low-cost capital to CDFI
depositories and holding companies, including banks, thrifts,
and credit unions.
And as we begin to emerge from this financial crisis, our
Nation's distressed communities and the CDFIs that serve them
will likely continue to lag behind broader economic growth.
That is why it is so important to bolster the CDFI field
capacity, as the President has suggested doing in the Fiscal
Year 2011 budget. That budget requests $250 million for the
CDFI Fund, including $140 million to the Fund's Financial and
Technical Assistance Awards and $12 million in funding for
Native communities.
We have made hard choices in the Treasury's budget. While
not proposing funding this year for either the Capital Magnet
Fund or for Bank Enterprise Awards, we have proposed two new
initiatives. First, the budget request seeks $50 million for a
Bank on USA initiative which will promote financial education,
broader access to bank accounts, and other financial services
to help families meet their financial needs and build savings.
Second, the budget requests funding for CDFI's
participation in a new multi-agency effort, the Healthy Food
Financing Initiative. This initiative will help provide the
financing necessary to increase the availability of affordable
healthy foods in underserved urban and rural markets. Treasury
will devote $250 million of New Markets Tax Credit authority
and $25 million in CDFI Fund Financial and Technical Assistance
awards to this initiative.
In addition, we have requested $5 billion in New Markets
Tax Credit authority for both Fiscal Years 2010 and 2011, and
we have proposed allowing this authority to be offset against
AMT liability. We are also working with the IRS on further
reforms to make the credit work smoothly for small businesses.
We look forward to working with the committee to support the
CDFI Fund's work to help distressed communities weather the
economic downturn and to support an economic recovery that
reaches all Americans.
Thank you very much.
[The prepared statement of Assistant Secretary Barr can be
found on page 45 of the appendix.]
The Chairman. Ms. Gambrell?
STATEMENT OF DONNA J. GAMBRELL, DIRECTOR, COMMUNITY DEVELOPMENT
FINANCIAL INSTITUTIONS (CDFI) FUND
Ms. Gambrell. Good afternoon, Chairman Frank, Ranking
Member Bachus, and distinguished members of the House Financial
Services Committee. It is a pleasure for me to be here today to
discuss the CDFI Fund. The CDFI Fund was established in 1994,
and our mission is to promote economic revitalization and
community development in low-income communities, primarily
through investments and assistance to CDFIs.
There are several types of CDFIs: community development
banks; thrifts; credit unions; loan funds; and venture capital
funds. All of them specialize in serving low-income communities
that lack access to credit, capital, and financial services
from mainstream financial institutions. CDFIs are often the
only institutions in their community that offer retail banking
services and responsible loans for small businesses and micro
enterprises, affordable housing projects, and community
facilities. They also provide additional services, such as
technical assistance for small businesses, and credit
counseling and home buyer education to help borrowers use
credit effectively.
Since the onset of the recent economic crisis, the CDFI
Fund has been called upon to play an even larger role in
promoting economic recovery in communities that have been
hardest hit by the recession. Congress and the new
Administration have taken significant steps to expand our
impact.
We at the CDFI Fund have been mindful of the tremendous
responsibility that we have been given in the midst of the
economic crisis, and our recent accomplishments bear witness to
our commitment of being a critical part of the Administration's
strategy that brings economic recovery to all. When the
recession first deepened, the CDFI Fund created a new advisory
board subcommittee to assess the impact of the economic crisis
on CDFIs.
We have already made significant progress in implementing
many of their critical recommendations. We have streamlined key
business processes to enable us to get funds to the communities
that need them more than ever. On average, we now disburse
awards--a process which used to take over 12 months--in 60
days. We now make decisions on all new applications for CDFI
certification within 90 days.
Our actions implementing the Recovery Act were nothing
short of extraordinary. Less than 100 days after the enactment
of the Recovery Act, we announced financial assistance awards
to 59 CDFIs and 10 Native CDFIs. Just 2 months later, we
disbursed all $98 million. As Assistant Secretary Barr stated,
the performance of the CDFI industry has been equally
impressive. CDFI Fund awardees financed more than 10,000
businesses and created or maintained more than 70,000 jobs
reported in 2009. These numbers speak volumes about the CDFI
industry's resilience, commitment, and creativity in
challenging times.
But I encourage you to look beyond the numbers, for there
is much more to the story than statistics alone. Each business
financed, each job created, and each home purchased represents
a critical step in the transformation of a life, a family and a
community, and that is what the work of CDFIs and the CDFI Fund
is really all about. It is about changing lives and building
stronger and more productive communities. It is about creating
opportunity and giving hope.
As we celebrate the 15th anniversary of the creation of the
CDFI Fund, this is an opportune time not just to reflect on
what we have accomplished but to look forward and envision the
steps we need to take next to create opportunity in our
Nation's most distressed communities.
We have recently released a request for public comments and
plan to take a thorough review of our entire authorizing
statute, looking not only at technical and substantive
revisions to existing provisions but also to provisions that
have not yet been fully utilized.
But some of our next steps are already clear. The
President's Fiscal Year 2011 budget builds on the CDFI Fund's
recent momentum and requests $250 million in funding. In
addition, it proposes two exciting new initiatives in which the
CDFI Fund will play a key role: the Bank on USA Initiative; and
the Healthy Food Financing Initiative. These are just a few
initiatives that we hope to undertake in the near future and
beyond. Many more must follow, and we stand ready if Congress
were to ask us to increase our role in serving low-income
communities.
Since the first days of the economic crisis, the CDFI Fund
has answered the call to assist in the Nation's recovery, and I
can assure you that we are prepared to continue answering that
call. This concludes my testimony. On behalf of the CDFI Fund,
I would like to express our gratitude for the support of
Congress and the Financial Services Committee. We look forward
to continuing to work with you in the future.
[The prepared statement of Director Gambrell can be found
on page 90 of the appendix.]
The Chairman. I will begin by asking, because there is a
whole complex of programs that we have been putting forward
that aren't always sorted out in the public mind, and I know
this is not the Community Reinvestment Act, but would either of
the witnesses or both want to discuss, is there an interaction
between this program and the Community Reinvestment Act?
Mr. Barr. I could say a word or two, and then maybe
Director Gambrell would want to follow up.
The CDFIs out in the communities often rely, as a source of
funding, on mainstream banking organizations. And those banks
can obtain positive consideration under the Community
Reinvestment Act for their investments in CDFIs across the
country. So the presence of CRA likely increases the flow of
capital to CDFIs from mainstream banks.
The Chairman. Ms. Gambrell?
Ms. Gambrell. We have seen financial institutions, Chairman
Frank, contribute to CDFIs in a number of different ways. Some
provide deposits in these organizations. Others actually
collaborate with them on initiatives, such as affordable
housing projects, small business development finance, and job
creation programs, as well as counseling services, home buyer
services, and financial education. So there are a number of
ways in which traditional financial institutions have also
partnered with CDFIs in a very substantive way.
The Chairman. A number of us, my colleague, Ms. Waters, who
has joined us, and others, have felt, and we will begin the
examination of that this year, that there is an argument for
expanding the reach of the Community Reinvestment Act, because
when it was originally enacted in 1977, it covered a much
higher percentage of our financial institutions because of the
diversification. So what I take from what you are saying is
that if we were to expand the scope of the CRA, that could
provide additional funds for the CDFI program?
Mr. Barr. I think that it is certainly the case, Mr.
Chairman, that with respect to the banking organizations that
have traditionally funded CDFIs, one of the reasons they have
often cited for the extent of their engagement, in addition to
other factors, is the Community Reinvestment Act.
As Director Gambrell indicated, they also appreciate the
ability to co-invest with CDFIs as a way of reducing risks that
they take. And so that package of activities has been
beneficial to them.
The Chairman. My final question is, we have heard, I
believe, wildly inaccurate imputations to the Community
Reinvestment Act of responsibility for mortgages that shouldn't
have been made. Now CDFI has a pretty good record. The ranking
member mentioned a time earlier when there were problems. We
have not in this current set of rules found too many people
coming forward who want to be critical. I wonder, to the extent
that the Community Reinvestment Act is sometimes blamed for
things which I think there is no basis for, in the interaction
between CDFI and CRA, would anybody have any basis to claim
that this has led to imprudence of any kind?
Mr. Barr. I think the record is reasonably that with the
experience of CDFIs in low-income communities, that they are
able to make loans that are more difficult for other
institutions to make. There certainly have been losses in low-
income communities, as there have been in many communities
across the country, given the financial crisis that we are in.
I wouldn't think that those are linked in any way to CRA.
I think that if you look at the record under CRA, the
Federal Reserve data, with respect to CRA, suggests that it
really is not linked to the subprime crisis that we just
experienced. That subprime crisis really started with a
fundamental lack of a level playing field with respect to
underwriting standards and a race to the bottom in our country.
So that is where I would suggest the problem lies.
The Chairman. The gentleman from Alabama.
Mr. Bachus. Thank you, Mr. Chairman.
The Chairman. Ms. Gambrell, do me a favor, because I made a
big thing about--stop the clock. The light that tells members
on this side when their time is expired, we obscured it with
your name tag. Would you just push that little doo-hickey
there? All right. There we go. Thank you.
Mr. Bachus. She can wait till after I am through
questioning. You can cover it back up till I am through.
Thank you, Mr. Chairman.
Given the relative stability, well, I don't know. Let me
just ask this: Is it appropriate to use TARP funds, Mr. Barr,
to fund CDFI?
Mr. Barr. Sir, our judgment, Mr. Bachus, was that, given
the financial crisis that we have just come through and the
instability in the financial sector, including in small banks,
community banks across the country, community thrifts across
the country, and Community Development Banks across the
country, that it was important to offer a support under the
Economic Stabilization Act for those institutions. And CDFIs
are one of the kinds of institutions, including community
banks, that we thought it was really important to provide
assistance for. So I do think, in our judgment, we need to
weigh taxpayer concerns always, but the overriding goal that
Congress gave us with respect to financial stability, we
thought it was an appropriate aspect of our community bank
efforts.
Mr. Bachus. I understand that there is still economic
instability and challenges in those communities.
I saw Danny Davis mentioned in your testimony, Director
Gambrell. He said it is, ``the community of need in search of a
sea of opportunity'' or something. But I am just, is TARP,
which was envisioned as a temporary program, and not always
probably directed towards the smallest in regional communities,
but I am not sure, I don't think it was ever envisioned as to
start using that as opposed to the appropriation process.
Mr. Barr. Well, I think those are completely separate
issues.
I would agree with you, Mr. Bachus, that the appropriations
process is to support the CDFI Fund's ongoing work in
supporting CDFIs across the country.
The Emergency Economic Stabilization Act is for an
emergency. It is a temporary program. The program that we have
set up, the initiative we have set up for CDFIs is a temporary
program. It is not a substitute for appropriations in any way.
It is designed, as are our broader programs, for community
banks--to deal with the fact that it is not just big banks that
got hit by the financial crisis.
In fact, the financial crisis caused enormous harm to
community banks and thrifts across the country. And that is why
we think, given the emergency situation, that was an
appropriate use of EESA funding consistent with what Congress
asked us to do.
Mr. Bachus. Were there some CDFI institutions--not the
banks--that participated directly in TARP?
Mr. Barr. Under the initial community bank program, there
were some CDFI banks and thrifts that participated in that
program.
Mr. Bachus. But they were all banks or thrifts?
Mr. Barr. Excuse me, sir?
Mr. Bachus. They were all banks or thrifts?
Mr. Barr. Under the initiative that we announced recently,
the institutions that are eligible are insured depositories.
They have to be a credit union, a bank or a thrift. That is
consistent with the community bank program from before.
We are looking at whether there are ways to assist with the
instability in the loan fund sector, but that is not something
that was part of what the President announced or what the
Secretary announced.
Mr. Bachus. And these are for the 2 percent loans
basically? Is that what--
Mr. Barr. It is 2 percent--capital with a 2 percent
dividend rate; up to 5 percent risk weighted assets under the
program.
Mr. Bachus. Okay. Tell me about Bank on America. Do either
one of you want to comment on that? I know that it is a real
problem in all communities, really, but obviously, it impacts
our lower-income communities.
Ms. Gambrell. Correct.
Mr. Bachus, the Bank on USA Initiative is focused on--and I
think we all understand the impact in these communities that
suffer from very high fees, have been victims of predatory
lending, do not have affordable consumer products and services
that are available. This initiative is to look at ways in which
we can replicate models across the country, through
partnerships with State and local government, nonprofit
organizations, CDFIs, and others that will provide the kind of
access to credit, bringing those populations into the economic
mainstream by creating and maintaining bank accounts, savings
accounts, individual development accounts, and other types of
services.
So there are a number of components to the initiative
itself, but the underlying, and I think, the most critical
piece is really looking at ways in which we can identify those
low-income populations, or low-income communities and help
bring people into the financial mainstream.
Mr. Bachus. I am not sure we have trouble identifying them.
We know there is--but I do know the need for that.
I thank you.
Ms. Waters. [presiding] Thank you very much.
I would like to try and determine where the CDFI Funds are
actually going and whether or not they are really impacting the
poorest communities in our country. I don't know if you have
done the kind of research that would match up your CDFI effort
with the poorest areas in the country so that you would be able
to say that, for example, there are CDFI institutions in
Tupelo, Mississippi, where the poverty rate is so-and-so. Have
you done that kind of look at where the funds are going?
Ms. Gambrell. Thank you for the question, Congresswoman
Waters.
Our CDFI customers, when you look at the demographics, you
can see that: 70 percent of them are low income; 60 percent are
minority; and 52 percent are women. Of the 824 certified CDFIs
that exist, we have CDFIs in every State of the country. As
part of their certification, when they come to Treasury to be
certified, one of the criteria that they have to meet is that
they have a commitment to, in fact, serve those low-income
areas substantively. So as we continue to do our research, as
we continue to get reports from the CDFIs, we certainly see
that they are serving those communities in very substantive
ways.
And you will certainly hear in the second panel ways in
which that is done. But clearly, they are doing the work that
they need to do to make sure that these communities' needs are
met.
Ms. Waters. Ms. Gambrell, one of the things you are going
to find from many of the members of this committee is a real
effort to determine where the resources are going that we work
for. For the members who are present here today, they represent
many of the areas that have not benefitted from many of the
programs we have fought for. Some of us were here when we
created the CDFI, but some of us look at our districts, and we
are not so happy.
So as we look at everything that we do in government,
whether it is stimulus money or CDFI funds, we are beginning
now to evaluate whether or not the work that we do is reflected
in how those communities either benefit or do not benefit from
our efforts.
So one of the things I would like to do is, not for
everybody on the committee, but for the members who are here
today, we have 1, 2, 3, 4, 5, 6 members who are present, 7
members, coming in with Mr. Scott. I would like to do an
evaluation of each of these seven districts as it relates to
your CDFI efforts. I would like you to take each of these
districts. We will make sure you get the names and the
districts of all the members who are present now. Any more
coming in, they are not going to be added. And we would like to
know exactly what is happening in each of our districts, not
only--I think as I look here, the way that you have divided up
the institutions that are available for the utilization of CDFI
funds, it looks as if it is banks and credit unions, and then
you have some kind of committees, etc. I want to see all of
those in our districts, how each of those organizations work
and whether or not we are getting the benefit of the CDFI
program.
Ms. Gambrell. And we would be happy to share that
information.
Congresswoman, I have also met with several of the members
here already, provided that information to them. But we would
be happy to do that again.
Ms. Waters. Okay. Just put it all in one big package so I
can look at it, too.
Ms. Gambrell. Okay. Certainly.
[The information requested by Representative Waters can be
found on page 118 of the appendix.]
Ms. Waters. I thank you very much for that.
And I am going to move on to our next member of the
committee, Mr. Mel Watt.
Mr. Watt. Thank you, Madam Chairwoman.
And I want to express my thanks to the chairman of the full
committee for convening this hearing.
I actually have had the opportunity to meet one-on-one with
Director Gambrell, and raised some questions with her, which
she has been kind enough to respond to in writing. One of the
concerns that I have expressed over the years is the extent to
which people, community development institutions which ought to
be a CDFI are actually getting into the Fund, on the one hand,
and the extent to which the ones that are certified as CDFIs
are using the fund, using what is available to them, on the
other hand.
I have had some discussions with Ms. Gambrell, and we are
going to reach out to some of the institutions in my
congressional district to try to get them more focused on the
benefits of what is available. One of the things we have found
is that, especially in the last couple of years, when things
have been so tough, most people who are interested in day-to-
day survival, you spend so much time surviving day to day, that
you don't always look at the other opportunities that might be
available that where you are doing more forward-looking and
global evaluation of opportunities that might help you to
survive day to day.
So I have already had discussions with, just yesterday in
fact, Ms. Gambrell. You will be happy to know that I had a
discussion with Ms. Saunders over at Mechanics and Farmers
Bank, and told her that I was planning to send her some
information. So I have had my opportunity to talk with Ms.
Gambrell.
I do want to ask, because one of the things Ms. Gambrell
has provided to me is the criteria for the new program that the
President just announced. And I wanted to get Mr. Barr's
assessment of whether that has been out there long enough for
you to make even a preliminary assessment of the willingness or
apparent willingness of CDFIs, and non CDFIs, I guess, would
also be eligible to use that program, because a lot of the
impediments that we thought were out there that were keeping
financial institutions from using the top moneys and getting
involved with these programs, some of those seemed to have been
stripped away. Has that had any impact that you have discerned
yet? Does it seem like this is going to be successful?
Mr. Barr. Well, I think, Representative Watt, that what we
did in designing the program really from last fall through the
announcement was spend an enormous amount of time with CDFIs
across the country, hearing their concerns, listening to their
needs, and trying to design a program structure that was going
to be responsive to the kinds of concerns that had been
expressed to us. We had been told by them that the program we
have announced will be useful to them. It is too early for us
to judge, as an empirical matter, whether the institutions
coming in are going to be able to use the program. We are very
encouraged by the conversations we have had. We are very
encouraged by the interest we have had. The applicants for the
program will need to come in during the month of April, so
quite soon, and then we will have a much better empirical sense
of the scope, scale and effectiveness overall of the program.
Mr. Watt. How long will the processing time be for you to
get somebody started on this new program and get them approved?
Mr. Barr. I think the process should be quite rapid. They
do need to check with their primary Federal regulator, again, a
basic taxpayer protection. But with respect to the Treasury
part of the program, we made the form quite simple. It is a
one-page form. It is available online. We have been working to
expedite the processing to set it up in advance so that it is
quite streamlined, particularly for smaller institutions, the
community banks and thrifts across the country, the CDFIs
across the country. So I am encouraged by that. But the proof
will be in the pudding. We will come back to you and show you
what we have done.
Mr. Watt. Thank you, Mr. Chairman. I yield back.
The Chairman. The gentleman from Kansas.
Mr. Moore of Kansas. Thank you Mr. Chairman.
At a hearing a few weeks ago which focused on job creation,
the economist Mark Zandi included in his testimony a chart of
what kind of multiplier effect various types of spending
proposals would provide.
Along the same lines, Assistant Secretary Barr, I
appreciate the statistics you provide that, ``CDFIs reported
providing financing to over 10,000 businesses and over 1,600
commercial real estate properties in 2008.'' In a time when the
commercial real estate market is under immense pressure, I am
sure you agree this financing can only help stabilize the
market, even if in a small way. You also point out that CDFIs
also report they help create or maintain over 70,000 full time
jobs in this period. How can Congress build on these successes
we have seen with CDFIs? Are there improvements or other ways
CDFIs can maximize their economic impact?
Mr. Barr. Thank you, Representative Moore.
I will start, and then Director Gambrell will add a few
remarks.
I fully agree with you. I think CDFIs can be an important
additional financing tool on the commercial real estate market.
And for small businesses and entrepreneurs across the country,
they have a proven track record in doing that. I think we are
able to get the funding at the President's request for CDFI,
which is $250 million for 2011. That will be a really strong
statement of the Congress standing behind small businesses and
small business growth.
I think if we can get the New Markets Tax Credit that we
have asked for, for 2010, which is still pending, if we can get
that done for this year, together with a fix to permit New
Markets Tax Credits to be offset against AMT liability, that
will be another big boost for small business growth, and the
same with 2011 for the New Markets Tax Credit.
We have a number of initiatives we are trying to pursue.
The Healthy Food Financing Initiative will help entrepreneurs
provide green grocer kind of activities in distressed
communities and help rural areas with farmers bringing their
food to market. So I think it is a win/win for everybody, and
we welcome working with you on it.
Mr. Moore of Kansas. Thank you.
Ms. Gambrell, do you have anything to add?
Ms. Gambrell. Congressman Moore, thank you very much.
I think when you look at the CDFI industry, clearly they
want to continue to grow. That growth is very important to
them. The expansion of CDFIs continues to be an important
priority for us as well. So as we move toward the future, I
think it is very important for us to look at those
organizations that continue to do that good work in
communities, have an opportunity to become certified CDFIs to
take advantage of our funding, and for us to have that
continued support to make sure we are helping CDFIs continue to
grow. The leveraging that CDFIs do is extraordinary in terms of
how they are able to use our funding. They are able to get the
money out quickly and effectively into those communities. And I
think that, again, their track record is something that we need
to continue to support.
Mr. Moore of Kansas. Thank you.
While a budget request to increase appropriations for the
CDFI Fund by $250 million might not seem like much when we have
gone through a major financial crisis and painful recession
which has cost hundreds of billions of dollars, I hope the
additional resources can be used effectively to the fullest
extent possible. What oversight and fraud prevention mechanisms
are currently being used or should be utilized to minimize any
waste or fraud with the use of these funds? Either one of you,
please.
Ms. Gambrell. Congressman Moore, we thank you for the
question. We have a number of systems in place within the CDFI
Fund. Not only do we see the applications at the front end and
have specific criteria for how we are actually assessing those
institutions, but within the Fund itself, we have a Compliance
Monitoring and Evaluation Unit that does on-site examinations,
assessments, as well as internal assessments of those CDFIs. We
get a lot of information from CDFIs through the year as well.
In addition to their annual reporting, they are continually
providing good information to us based on audit statements and
other types of self assessments that they are doing as well. So
we believe that we have the infrastructure in place to make
sure that we have good information about the CDFIs, and that we
clearly understand their soundness as they, again, continue to
do the work that they do.
Mr. Barr. And I should just add, Representative Moore, that
in the CDFI Fund budget for 2011, within the $250 million,
there is important additional money to be sure that we have the
infrastructure in place, the systems in place to continue that
strong record.
Mr. Moore of Kansas. My thanks to the witnesses.
I yield back, Mr. Chairman.
The Chairman. I thank the gentleman.
The gentleman from California, Mr. Baca.
Mr. Baca. Well, thank you very much, Mr. Chairman, for
having this hearing.
And I want to thank the minority ranking member.
The first question I have is, I want to start off by
talking about the Small Business Lending Initiative that was
announced a few weeks ago by the Administration. It is my
understanding that the regulators will have a large role in
deciding who is able to participate and receive funds from that
initiative. My fear is that the Funds will have a limited role,
and I state, a limited role in that process, and the regulators
will be unable to accurately assess which institutions can and
should take advantage of it.
Question number one, can you comment on the role that CDFI
Funds will have in this process?
And then question number two, who will have the final say
in this process, the CDFI Fund or the regulators?
Mr. Barr. Under the program that was announced, consistent
with prior programs announced within the Office of Financial
Stability, the credit union, bank, and thrift regulators need
to make a determination that the institution is operating in a
safe and sound manner. Under the CDCI initiative that was
announced, in making that assessment, the regulators will take
into account the ability for these CDFIs to reach that safe and
sound level using a matching fund, so not simply through
private capital, but can use Treasury funds up to a one-to-one
match to reach that appropriate level. So we think that that
combination of insurance taxpayer protection, with Treasury
matching to viability will be a quite strong measure for those
funds going in. That program, then, once there is a bank
regulator review, that will go to the Office of Financial
Stability for final approval within the Treasury Department.
Mr. Baca. So who will actually make the final decision
then?
Mr. Barr. It goes from the bank regulators to the Office of
Financial Stability, and that decision is made at that point by
the Office of Financial Stability.
Mr. Baca. Okay.
I also want to talk about the CDFIs creation. It is my
understanding that there are 4 Hispanic, and I state, 4
Hispanic-focused CDFIs in existence now, out of 1,200. Why are
there only 4 out of 1,200 CDFIs that are Hispanics? Can you
answer that? Why only four?
Ms. Gambrell. Congressman Baca, thank you.
I don't have that number, and in fact, I will have to get
the exact number. We are constantly looking at the number of
newly-certified CDFIs. I think we have, especially this year,
done some significant outreach, particularly to Latino
community organizations as well, Latino communities, to really
talk about and really encourage them to look at our programs
and look at the benefits of becoming a certified CDFI. So if I
could, I would like to get back with you on the list that we
have as well of those Latino organizations. But I can say
this--
[The information requested by Representative Baca can be
found on page 177 of the appendix.]
Mr. Baca. Yes, I know which four exist right now. But
beyond that, that is only 4 out of 1,200. And yet we are
looking at our population being 17 percent total population of
the United States, and then approximately, will be about 25
percent by the year 2030. So if we are lagging behind, we need
to begin to start looking at providing the service to an
underrepresented community right now.
Ms. Gambrell. That is correct. And our interest is looking
at the diversity of those pool of organizations that are
certified CDFIs. And also, of course, we look at the CDFIs and
the community that they serve. So it is, for us, we want to be
sure that the priorities are in two areas: that we have a good
robust pool of certified CDFIs that are serving communities,
including Latino communities; but also, the CDFIs that exist
already, we want to be sure that they are also looking at those
communities, identifying the needs and then providing products
and services. We think that certainly, on one hand, certified
CDFIs that already exist are doing that again in a very
significant way.
Mr. Baca. Okay, if I may continue my questioning, because
my time is almost up. I see the yellow light.
However, we know of other organizations that focus on
minority business development interest in creating CDFIs that
currently provide technical assistance but lack appropriate
lending facilities. Given the value of CDFI small business
lending programs, have you explored the possibility of
accelerating the application process or narrowing other
requirements like time requirements for financial activity in
order to approve or consider those entities that would
otherwise qualify?
Ms. Gambrell. One of the things that we are doing,
Congressman, is that we are continually looking at our internal
processes. So we have reduced the amount of disbursement time
that it takes to get awards out. We have reduced the amount of
time that it is taking organizations to get certified. We think
that there is always room for improvement and that we can do
more. But in many ways, we have in this past year, in
particular, decreased the amount of processing time anywhere
between 50 and 75 percent. The Fund has a long reputation of
working very efficiently and quickly to get money out the door,
to get funding out the door, and we will continue to look for
ways in which we can do an even better job.
Mr. Baca. So when should we come back and assess you and
evaluate to see what processes you have done?
Ms. Gambrell. One of the things that we are putting into
place in this current round is that we are looking at
streamlining our applications, making that a little bit easier
for organizations that are applying for our funding, cutting
down on the amount of paper, which is always, I think, a
welcome from any organization that is applying for funding. We
are looking at ways in which we can have even greater impact in
communities for those organizations that are receiving funding
from us. So I would ask that you take a second look after this
round is through, this current round is through, because I
think we will clearly see some improvements as well.
Mr. Baca. Thank you.
The Chairman. I am going to ask, by the way, Ms. Gambrell
has promised to give further information. I noticed in several
of the statements that we have afterwards, there were some very
specific proposals made, and so I will ask the Secretary and
the Director to respond to those to us in writing. There were
some specific proposals that we asked for about how to improve,
change, some legislative, some administrative, so we will ask
you to review those and get back to us.
[Responses to panelist's proposals can be found on page 165
of the appendix.]
The Chairman. The gentleman from Georgia.
Mr. Scott. Yes. How does the CFDI--
The Chairman. I apologize. We have been joined by a member
on the other side, the gentleman from New Jersey.
Mr. Lance. Thank you, Mr. Chairman.
And good afternoon to you all. I think it is clear that the
Community Development Financial Institutions have been
successful in bringing greater capital and investment into
America's economically distressed areas. And I cannot imagine
that there is a congressional district anywhere in the United
States that has not benefitted from your fine work.
It seems to me that there is general agreement that CDFIs
have played a constructive role in rebuilding poverty-stricken
and transitional neighborhoods and have helped to bring
economic opportunity to individuals living in markets
considered to be underserved by the financial services
industry. Providing access to credit and investment capital is
a primary step toward creating and retaining jobs, and
obviously, creating jobs is what is at the heart of our work at
the moment in Congress.
It also revitalizes neighborhoods, develops affordable
housing, and supports small businesses. And certainly, our goal
is for that to continue to the greatest extent possible.
To you, Ms. Gambrell, given the historically large amounts
of funds distributed by the CDFI Fund in 2009, and the speed of
the disbursement, do you think that standards for awarding
grants were in any way modified or lowered in 2009?
Ms. Gambrell. Thank you for the question, Congressman.
Mr. Lance. Certainly.
Ms. Gambrell. No, I don't. In fact, we were very methodical
and thorough in our review processes for the 2009 rounds. We
have what is called a triple-blind review process where we get
a number of outside reviewers with expertise in community
economic development issues who come in and read our
applications. That goes through several other iterations even
before recommendations are made. That process did not change in
this current round, in this last round that we had. We
continued to be, again, very careful, very thoughtful about the
process itself and clearly, I think, had not only staff in
place but outside expertise as well to help us work through
that process.
Mr. Lance. And could you explain in a little greater detail
how the triple-blind process works?
Ms. Gambrell. Yes. We have three reviewers who are assigned
to one application. Each of our applications gets three sets of
eyes on it in the initial phase. Those applications then are
reviewed to make sure that they adhere to the criteria as set
forth with that particular program or initiative. The reviewers
then make recommendations. Their recommendations are forwarded
to a second panel that takes a look at their ranking of those
CDFIs that have come in for funding. A determination is then
made from that list. The recommendations then move forward to
still another round of reviews before a team leader is actually
able to take a look and look at the recommendations and make a
final determination.
I don't get involved in that process, and I think it is
important for me to make sure that there is an understanding
that this is an arms-length process, as it should be, a
firewall between that process and those reviewers.
But when the final recommendation does come to me, those
reviewers have taken great care in making sure that there is
institutional diversity, geographic diversity, and that the
funds are going to those organizations that have provided
extraordinary comprehensive business plans on how they plan to
use the funding.
Mr. Lance. Thank you.
Mr. Barr, do you have any comments regarding that?
Mr. Barr. I think Director Gambrell handled it very well.
Thank you.
Mr. Lance. Thank you. Would you--there will be a subsequent
panel, and I think it is probably unfair to ask you about what
we expect the testimony to be from the subsequent panel, but
obviously, on our side of the aisle, we would like you to
comment as that subsequent panel articulates its point of view.
Thank you, Mr. Chairman. I yield back the balance of my
time.
The Chairman. The gentleman from Georgia.
Mr. Scott. Thank you, Mr. Chairman.
Let me just ask, for the record, how do you target the
underserved communities? Is it by something like household
income? What is that criteria?
Ms. Gambrell. Congressman Scott, we have some very specific
criteria. We start with the qualifying census tracts, of which
there are about 25,000 tracts that qualify that are low income,
where there is high unemployment, high poverty, and look at
those, start with those census tracts. But in particular, what
we are doing as part of our outreach is making sure that those
CDFIs that are in those highly distressed areas are aware of
our programs so that they can come to us for that funding. And
if they qualify, and if there is funding available--we have a
high demand, as you know, for our programs. But if that funding
is available, then those are the organizations that receive the
funding.
Mr. Scott. Very good. Let me ask you this, because I think
the real central issue that we have to grapple with here is
your lack of access to capital, so let's talk about that for a
moment. From what I understand, you have gotten about $100
million through the stimulus, and the Administration is asking
for $250 million for the appropriation. And then there is
something called a New Markets Tax Credit. Could you--and that
is it. Is that enough? Can you tell us if that is enough of
access to capital to do what you are doing? And if not, we need
to know here today what legislative fixes we need to do to give
you the level of capital you need.
Mr. Barr. Let me, if I could, Representative Scott, take a
first cut at that.
The Administration has requested funding for the New
Markets Tax Credit of $5 billion in 2010 and 2011. We still
haven't closed out the 2010 New Markets Tax Credit extension.
Mr. Scott. But let me ask you something about that,
because--can you explain what the New Markets Tax Credit is?
And especially at a time when all these tax credits--and I
don't know if New Markets is different, but these tax credits
are losing their value because of the housing stop. Isn't that
a problem? Could you explain what those are?
Mr. Barr. Certainly, Representative Scott.
So, the New Markets Tax Credit is a bipartisan initiative.
It was put in place now about 10 years ago. And it is designed
to bring new sources of private-sector capital for business
development, for charter schools, for community development in
low- and moderate-income rural and urban communities.
And the way it works is community development entities
apply to the CDFI Fund on a competitive basis to receive an
allocation. And they then use that allocation to attract
private-sector resources. The tax credit then goes to the
investor, and the investor gets a tax credit equal to 39
percent of their investment. It is patient capital investment
over 7 years.
So it is a tax credit that is allocated by the CDFI Fund on
a competitive basis. And it is then used to build commercial
real estate, to do small business, to do entrepreneurial
efforts in low-income communities.
It has had a more difficult time in the financial crisis.
It is one of the reasons why we want to be sure that you can
use New Markets Tax Credits to offset AMT liability, and that
will expand the investor base.
Mr. Scott. I see my yellow light coming on, so I don't want
the chairman to gavel me before we get to the crux of my
question, which is: Is that sufficient? Are these sources
sufficient? And, if not, tell us what you need us to do.
Mr. Barr. I think the first thing I would say is, let's get
the AMT relief and get the $5 billion authority for 2010, let's
get the $5 billion authority for 2011, let's get the CDFI Fund
budget at $250 million. That would make a huge difference in
low- and moderate-income communities around the States. There
are never enough resources, and people are hurting. But I think
this is a very, very strong step.
Mr. Scott. So those legislative fixes, again, would be the
AMT relief, make sure we get the $250 million that he is asking
for, and what was the other thing you needed?
Mr. Barr. And then the 2 years, the $5 billion in New
Markets allocation authority for 2010 and the same for 2011.
That would make a big difference in low-income communities.
Mr. Scott. Thank you, sir.
Thank you, Mr. Chairman.
The Chairman. The gentleman from Texas?
Mr. Green. Thank you, Mr. Chairman.
Again, I thank the witnesses for testifying.
So that we can paint a proper picture, is it safe to assume
that we have some low-income communities that are Anglo? I
mention this only because--
Mr. Barr. Of course.
Mr. Green. --the perception seems to exist that this is
another type of affirmative action program or something that is
designed specifically for minority communities, which is not
the case. This has benefited persons across--
The Chairman. If the gentleman would yield, a casual
observer looking at the attendance at the hearing might be
inclined to think so.
Mr. Green. Well, sometimes the person who is the voice of a
program can project an image, too. And I just want to make sure
that people understand that this has been a great program for
people, regardless of ethnicity.
And I really am curious as to why you were successful to
the extent that you were when we had the downturn in the
economy, when we had other banks, community banks and other
banks, institutions that were not. Can you give me just some
insight as to what helped you to weather the storm?
Mr. Barr. Well, I would say, first of all, Representative
Green, that a number of low-income communities were badly hit,
including CDFIs. But many CDFIs had performance records that
were better than their peers in similar circumstances. And I
think that is because CDFIs are used to adversity, and they are
used to finding creative ways of doing risk mitigation. They
are used--
Mr. Green. Let me intercede right there. Let's have an
apples-to-apples comparison. Let's take a business loan. You
make business loans, small business loans. And that is a great
thing, by the way; I commend you for it. Why is it that your
small business loans were successful in terms of repayment as
opposed to small business loans that were made by some other
institutions?
Mr. Barr. I think that you are going to hear a little bit
of that in the second panel from the CDFIs across the country
that are making small business loans. But it is basically
knowing their customer, building relationships, providing
business advice and business assistance. It is knowing your
community that you are serving. It is finding creative ways of
sharing risks with others.
And I think the strategies are proving effective even in
this downturn, although, as I said, many low-income communities
and many business loans are suffering in this downturn for
CDFIs. It is just that, in many circumstances, they are able to
weather a little bit better than their peers in similar
circumstances.
Ms. Gambrell. And, Congressman Green, if I may, sometimes
it is as simple as the CDFI being physically located in that
community. As Assistant Secretary Barr said, they know their
customers; they see their customers day-in and day-out. And so
this is a neighborhood that is used to seeing that CDFI, has
access to the CDFI, knows the people who work there, and there
has been a level of trust and comfort that has been established
and nurtured over many years.
Mr. Green. As we move forward, what would you recommend
that we do here in Congress to assist you such that you can
become fully capitalized, as is the case with banks? Banks
would like to be fully capitalized. What would you recommend we
do to help you become fully capitalized so that you can meet
the demands of the market, not make loans arbitrarily and
capriciously, but continue to make good, solid loans that
people will repay and help small businesses to grow and
flourish and help people to get jobs? What would we need to do
to help you meet your demands?
Ms. Gambrell. Well, I think the Assistant Secretary has
talked a little bit about that. Certainly, from the New Markets
Tax Credit side, there are parts of the program that will
continue to be important for us to move the New Markets Tax
Credit forward and to make sure we have a robust program there.
Clearly, even from our financial assistance and technical
assistance grants--
Mr. Green. I am more concerned about the small business
loans. The New Markets, I am familiar with, and that deals with
areas, generally speaking. But small business loans?
Ms. Gambrell. Yes. And so, from our financial assistance
and technical assistance grants, those grants, in fact, have
been used to continue to spur small businesses and to help with
small business investments. I think that, again, to continue to
see the expansion and growth of that program is going to be
important to those CDFIs that are supporting those small
businesses.
We are also looking at ways on the New Markets Tax Credit
side, as well, to look at ways in which the tax credits can
also be used to further support small--
Mr. Green. My time has expired. I yield back. Thank you,
Mr. Chairman.
The Chairman. The gentleman from Missouri?
Mr. Cleaver. Thank you, Mr. Chairman.
Thank you, Mr. Barr.
And, Ms. Gambrell, I thank you for being with us last
Wednesday, the CBC.
Mr. Barr, when loans are made and Treasury transmits those
loans to the regulators, how do we know that they know that
these are high-risk loans? And is there any way in which
regulators can take that under consideration when they are
dealing with the borrowers?
Mr. Barr. I think that we operate, obviously, a step
removed in the process, in the sense that community development
credit unions, banks, and thrifts are directly making the
loans. The funds from the Treasury are going to support their
making those loans.
We have had an ongoing process with the bank regulators to
make sure that they are aware that CDFIs are CDFIs. There is, I
think, enhanced information sharing that Director Gambrell has
put in place with the bank regulators to ensure that there is a
timely and appropriate sharing of information consistent with
supervisory responsibilities and confidentiality that helps
that information process.
Mr. Cleaver. Good. Okay, thank you. But what I am wondering
is whether or not Treasury or Ms. Gambrell's operation not only
passes the money through, but if the regulators are going to
act as they would if--I almost said General Motors, but that a
healthy corporation is borrowing the money.
I am not suggesting that, as some folks always suggest,
that we are telling people to tell the regulators to turn their
heads or have a blind spot for these. But these are risky
loans; we know that from the very beginning. And I am
interested in how that plays out with the borrowers.
Mr. Barr. There is obviously a separation between the
independent regulator role and the role of Treasury and the
CDFI funds--
Mr. Cleaver. I understand.
Mr. Barr. --so we have been trying to make them aware of
the basic sets of situations. They have to make independent
judgments with respect to institutions or loans.
Mr. Cleaver. But they tell us they are afraid even right
now. When we bring in the banks, they say they are going to
make the loans, but the regulators are telling them that they
have to watch this and watch that, and so loans are not getting
out.
So if we are doing that with healthy companies, my fear is
that we don't get the optimum out of this if we are doing it
like we do any other loan.
Mr. Barr. I share your concern. I think that there is a
natural tendency that you are seeing playing out in the
regulatory community. With respect to the economic cycle, it is
more severe than it usually is, but I hear that concern.
Mr. Cleaver. What can we do about it?
Mr. Barr. I do think that calling attention to the problem
with the regulators is appropriate. The regulators have gotten
together to issue guidance on commercial real estate and small
businesses. My understanding is they are training their field
staff in that new guidance, which is designed to promote
consistency in the treatment of those loans.
Mr. Cleaver. Okay. Let's shift gears. Bank Enterprise Award
allocations--it has been zeroed out. This hurts, as I relate it
to my district, in the community banks, banks that are
operating in poor neighborhoods or in minority neighborhoods.
We have a bank in Kansas City, Central Bank on Independence
Avenue, and they said, this is something that is desperately
needed. It has been zeroed out. Can you explain why?
Mr. Barr. Certainly. As we were setting the CDFI Fund
funding level, we had to make hard choices for this fiscal
year. We wanted to explore ways of making sure that the Bank
Enterprise Awards Program works effectively. I think for
institutions that have used BEA in the past, it has some
cumbersomeness to it that we would like to work our way
through.
Many of the community banks that are serving low-income
communities can and do apply for CDFI core fund awards, which
we have proposed to significantly increase under the $250
million request.
Mr. Cleaver. Thank you. My time has run out.
The Chairman. The gentleman from Indiana?
Mr. Carson. Thank you, Mr. Chairman.
Recent research conducted by Federal Reserve staff
regarding the work of a CDFI in my district indicates their
programs for mortgage and credit counseling, homeownership
training, loan programs, and post-purchase counseling are able
to create borrowers who perform significantly than borrowers
who do not complete the CDFI's programs. By ``better,'' I mean
that after about 12 months their clients have delinquency rates
approximately 10 percent lower than customers who have not gone
through the program.
The CDFI in my district does this while serving the
targeted populations noted by the CDFI Fund in its financial
assistance Notice of Funding Availability or NOFA. It is an
ideal CDFI-type program. It is charitable, with private-sector
funds, where they are combined with the significant positive
leverage of bank capital to develop loan pools that finance
long-term, stable, fixed-rate mortgages for underserved
borrowers in neighborhoods. Yet, CDFIs in Indiana have only
received approximately $5 million in direct financial
assistance since 1996.
My question is, what can applicants do to highlight the
impact of their programs and make them more visible and
recognized by the CDFI Fund during the evaluation process for
financial assistance?
Ms. Gambrell. Thank you, Congressman, for the question. It
is a great question.
What we find oftentimes, and what we continue to tell those
applicants who come to us seeking funding and, quite honestly,
where we still see some areas where organizations could do an
even better job is really to talk about the impact that they
believe that they will have upon communities. There are some
that are very shy about really promoting the work that they do
and talking in very specific terms about the impact that their
comprehensive business plan might have.
And so one of the things that I would encourage and one of
the things we continue to encourage those organizations that
come to us seeking funding is to make sure that they are being
very specific and very explicit about the community impact,
because that carries a tremendous amount of weight in the
application process and for consideration itself.
Mr. Carson. Thank you, Mr. Chairman. I yield back.
The Chairman. The gentleman from North Carolina?
Mr. Miller of North Carolina. Thank you, Mr. Chairman.
My question is not specifically about CDFIs, but about low-
income communities generally, and specifically, the foreclosure
problem and the problem of underwater borrowers. And,
certainly, there has been a great disappointment in the failure
of the industry of mortgage holders to modify mortgages in a
way that makes it possible for those in the mortgages, for
homeowners, to have underwater borrowers, to give them some
equity to protect, to make it worth protecting. And, without
that, even a modified mortgage payment is just expensive rent.
Obviously, the foreclosure problem continues, and there are
many who can't seem to get the mortgage holders to foreclose so
they could get on with things, at least take the loss and move
on.
One of the problems that we continue to hear with voluntary
modifications is the problem of second liens, principally
second mortgages rather than home equity lines of credit. And
there seems to be an obvious conflict in the interest of the
first lien holders and the second lien holders.
But apparently, two-thirds of all servicing is controlled
by the four biggest banks, which also hold about half of all
the second liens, between $400 billion and $450 billion in
second liens, which seems to be an obvious conflict of
interest, particularly if the second liens are a large
unrecognized loss for those institutions, which it appears
almost certain that they must be.
Is the Administration, is the Department of the Treasury
pursuing any remedy for that conflict of interest? Have you
examined whether there is any existing law, State or Federal,
statutory, common law, regulation, anything, that could address
that obvious conflict of interest? And, if not, are you
considering pursuing some kind of remedy that would prohibit a
servicer from also holding second mortgages?
Mr. Barr. This is obviously a thorny issue. It has
bedeviled mortgage modification efforts for, really, since the
beginning of the crisis. I think you are right to focus on the
problem of second liens. I know Chairman Frank is also quite
focused on that problem. I believe the committee is going to be
having a hearing focused particularly on the issue of second
liens.
I know that we would like to see more action by the banks
in this area. I think that the action so far has been
disappointing.
We have built into the President's modification plan a
program to extinguish second liens automatically when a first
lien is modified. We have been encouraging the banks to sign
up. We have one of the big four signed up thus far. We are
hopeful we will get the others in, but they are not in yet.
When that program--once we are able to get those big
institutions in, then when a first lien is modified, the second
lien would automatically be brought into the modification
program and either extinguish or modify down along with the
first lien.
We are seeing some principal reduction in the modification
program, but not as much as we would like. This will help that.
Borrowers who come into the program, we are finding that more
than two-thirds of them are continuing to pay, which is much
better than prior modification programs. That is encouraging.
But we need to do more.
Mr. Miller of North Carolina. Well, certainly, there has
been a lot of concern that it will not be long before there
will be more and more homeowners walking away. Yes, a
surprisingly large number of homeowners are still paying, and I
worry about, kind of, the loosening of the bonds of what is
considered ethical conduct, of just deciding you are going to
walk away. But, at some point, don't you think that there will
be a significant problem with borrowers, with homeowners simply
not paying, walking away, renouncing their debt, particularly
in nonrecourse States?
Mr. Barr. Well, our judgment, Representative Miller, is
that this is a critical issue, but we need to be careful or
protective of taxpayer concerns. We need to be sure that we are
helping responsible borrowers who want to stay in their homes.
But if there is a borrower who wants to walk away from their
home, I am not sure that is the moment that we want to step in.
We want to focus on the responsible borrower who wants to stay
in their home, who has suffered some problem.
Mr. Miller of North Carolina. Yes. The only point I was
making is I feel a sense of urgency--and not saying, well, two-
thirds are still paying--I feel a sense of urgency that will
not remain the case. And we need to get ahead of the problem.
Well, we are not going to get ahead of the problem, at this
point, but begin to catch up with the problem.
Fundamentally, do you see that as a conflict of interest,
to be a servicer for first mortgages while holding a second
mortgage?
Mr. Barr. I do think that, in our financial services
sector, there are a number of conflicts of interest that are
built into the structure of securitization trust and the
mortgage financing system. It is one of the reasons why we so
strongly wanted to pass financial reform, why we are pushing
really hard to get it done this year, because I think we need
to set uniform national standards that will improve that, going
forward.
We have a problem that is outstanding; we have to figure
out a creative solution to get there. And that is why we have
been looking in the modification effort to do it.
Mr. Miller of North Carolina. Yes, I know that there are a
lot of conflicts of interest. Is that one? Do you think that is
one, to service the first liens while holding a second lien?
Mr. Barr. I think that, in some circumstances, there is a
misalignment of incentives between the first and the second
lien. That is one of the examples of that. We have been trying
to correct for that with our second lien modification program.
I agree with you, it needs more work. I am encouraged that the
committee is interested in looking at it together with us.
Mr. Miller of North Carolina. I can't tell what the lights
mean now.
The Chairman. The red means--
Mr. Miller of North Carolina. Well, yes, but I can't--okay.
They have been changed. I see that I have no time to yield
back.
The Chairman. Your time has expired. I am sorry.
The gentleman from Alabama asked unanimous consent for a
couple more questions. Without objection, the gentleman from
Alabama.
Mr. Bachus. Thank you, Mr. Chairman.
Mr. Barr, Mr. Green was asking you about the performance of
the loans earlier. And it called to question--I know the
testimony of one of the witnesses on the second panel is that
CDFI banks are significantly underperforming peer banks. He
says CDFI banks reported a median net loan charge-off rate of
1.11 and a median noncurrent loan ratio of 3.82. By contrast, a
peer group for traditional banks--and those are banks with less
than $2 billion in total assets--reported a net loan charge-off
rate of .42 and a noncurrent loan rate of 1.71. That would be
about a--that would mean that the peer group was actually
having charge-off of about one-third of what the CDFI banks
were.
Now, I don't know what that--whether we are talking about
low-income communities. Are you familiar with the testimony?
Mr. Barr. I have not read the particular statistic that you
just cited to me. But I think there is a question of making
sure we have apples-to-apples. So, in my response to Mr. Green,
I was focused on trying to think about a traditional bank
making a loan in the same circumstances as a CDFI bank and
suggesting the reasons why a CDFI bank may be more successful
in doing that.
I don't want to suggest that this is easy to do or that
low-income communities aren't hurting. They are. And businesses
in them are hurting more than generally in the country.
Mr. Bachus. Were you saying they are more successful or
that they may be or if they are?
Mr. Barr. I was saying if they are serving a similar
borrower in the circumstances, these are the reasons why they
might be so. But I certainly have not looked at and examined
the statistics that you just described.
Mr. Bachus. Okay, so we really don't have those numbers, or
do we know?
Mr. Barr. I don't have the numbers that you just described.
Mr. Bachus. Yes, and I would just say this as a follow-up:
Maybe if there are some numbers available or if the second
panel, you get the testimony of the witness who says that, if
you would kind of take a look at it and maybe just respond in
writing, or Ms. Gambrell.
Mr. Barr. We would be happy to come back to you on that.
And, in addition, there have been some studies of the CDFI
field and where they are successful and where they are not, and
we would be happy to provide that.
Mr. Bachus. Right. That would be helpful. I appreciate
that.
The Chairman. This panel is excused, and the next panel
will come forward.
We will begin with the Enterprise Corporation of the Delta.
STATEMENT OF WILLIAM BYNUM, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, ENTERPRISE CORPORATION OF THE DELTA
Mr. Bynum. Thank you, Mr. Chairman, Ranking Member Bachus,
and members of the committee. Good afternoon. Thank you so much
for convening this important hearing. And thank you for
inviting me to testify.
As you said, my name is Bill Bynum, and I am the CEO of the
Enterprise Corporation of the Delta and its affiliate, Hope
Community Credit Union, a CDFI. Since we were established in
1994, we have generated over $1.4 billion in financing and
assisted over 71,000 individuals in Arkansas, Louisiana,
Tennessee, and Mississippi. We work in a region that
encompasses the Mississippi Delta, the Gulf Coast regions that
have been devastated by Hurricanes Katrina and Rita, and what
is arguably perhaps the most historically distressed region in
our country.
While my comments today will be from my experience as the
CEO of ECD/HOPE, I also serve as the chairman of the Community
Development Advisory Board, which is charged with providing
counsel to Director Gambrell regarding policies of the CDFI
Fund.
The advisory board, in October 2008, in the midst of this
financial crisis, stepped up to initiate a response to the
detrimental impact that this crisis was having on the industry
and the communities it served. We gathered extensive input from
the field, from trade associations, foundations, funders, and
presented a series of recommendations to Director Gambrell that
focused on increasing CDFI capacity through legislative and
statutory actions, on improving the efficiency of the Fund's
certification, award, and reporting process, and on ensuring
that CDFI programs are being utilized in areas of highest
economic distress.
I am pleased that several of the recommendations have been
implemented, providing a financial lifeline to thousands of
people struggling in distressed communities across the country.
It is also significant that we still have work to do in some of
those recommendations.
Director Gambrell and her staff ought to be commended for
expediting funding so effectively over the past year, enabling
financial assistance in communities faster than ever before.
However, in the fourth quarter, 56 percent of CDFIs reported
increased demand for financing due to the deterioration of
secondary markets, tightening of credit, and smaller State
budgets. And CDFIs across the country report capital
constraints that limit them from responding to the increased
demand that we are seeing.
Despite more Federal funding for CDFIs relative to prior
years, more than 200 high-scoring CDFI applications to the
fund, totalling $328 million, could not be funded in the last
fiscal year. Unfortunately, the impact of the shortfall is
often greatest in areas that suffer historically from high
levels of poverty and a lack of access to capital, such as the
region in which I work.
The mid-South region of Arkansas, Louisiana, and
Mississippi has the highest poverty rates in the Nation.
Mississippi and Arkansas have the lowest and third-lowest
median family incomes in the country. We have a high percentage
of unbanked residents compared to other States. High-cost
mortgages are dominant in our region. Thirty-seven percent of
Mississippi's population is African American, the highest
percentage in the Nation. And despite the higher concentration
of minority residents, we have the lowest rates of minority
business ownership. That is the primary reason the CDFIs are so
critical.
We made several recommendations that we hope that the Fund
and this committee will consider. The first is to give higher
priority of CDFI funding in areas of high economic distress.
The advisory board recommended that the Fund take steps to
ensure the programs are being utilized in areas of highest
economic distress. And we recommend that Congress consider
emphasizing this, perhaps in a way similar to what was done
after Hurricane Katrina, by focusing specific resources on
those areas that have highest job loss, highest percentages of
African Americans, and highest economic distress.
We also recommended that TARP funds be carved out for
CDFIs. We appreciate the allocation of TARP funds to depository
CDFIs. As Secretary Barr mentioned, loan funds were not
included in this. We have made several recommendations to
Treasury that we think provide funds to loan funds in a
responsible manner. And we encourage the Treasury Department
and Congress to work with the field to implement these
recommendations.
Lastly, I would like to encourage that CDFIs get greater
access to Federal resources across-the-board. CDFIs are unique
in providing services to distressed communities, and it stands
to reason that we should have access to Federal resources on a
par with traditional financial institutions, such as SBA
programs, USDA programs, HUD, and others. And because the CDFI
advisory board includes representatives of all of these
agencies, we would be ready to play a role in facilitating this
collaboration.
Thank you.
[The prepared statement of Mr. Bynum can be found on page
63 of the appendix.]
Mr. Watt. [presiding] Thank you for your testimony.
Mr. Moncrief, you are recognized for 5 minutes.
STATEMENT OF L. RAY MONCRIEF, EXECUTIVE VICE PRESIDENT AND
CHIEF OPERATING OFFICER, KENTUCKY HIGHLANDS INVESTMENT
CORPORATION
Mr. Moncrief. Thank you, Mr. Chairman, and Ranking Member
Bachus. Thank you for the privilege and the opportunity to
testify on the CDFIs and the work that we are doing at Kentucky
Highlands Investment Corporation in Kentucky.
I, too, am a member of the CDFI Advisory Board, and I
perform as the chief operating officer of Kentucky Highlands. I
have been a practitioner in the area of community economic
development for 32 years. And I do the work that I do in
Appalachia, which is a severely rural, distressed area of our
Nation.
I want to communicate that CDFIs do fill a vital niche in
our financial services for areas that are highly distressed and
are low-income.
Kentucky Highlands has been around since 1968 and provides
a whole series of equity products and debt products to
businesses that are looking to start, looking to expand, and
looking to stabilize. Just for an example, Kentucky Highlands
has invested more than $165 million in more than 500 businesses
since its inception and deals with unemployment rates somewhere
in the 15 percent range.
The Kentucky Highlands service area, indeed, is rural and
is frequently overlooked by traditional capital sources. We
know that there are specific unique needs in our service area
that we target with the CDFI Fund, and we have been able to
greatly improve the quality of life of many people.
An example: A company named Patriot Industries in a very
severe low-income area 12 years ago began with 15 employees. We
invested equity and provided various forms of debt and
operational assistance to that company. Today, they closed
their fiscal year 12/31/09 with 545 employees and was very
profitable and have plugged $33 million of payroll into that
community over the last several years.
One of the questions that Congressman Scott asked of the
earlier panel was what would happen if we weren't there? An
example is that in London, Kentucky, there was a small business
that did metal stampings and did powder coating and those sorts
of things. When the financial crisis hit, the regional banks
were looking at those companies that were on the bubble, and
they asked this particular company to find its financing
elsewhere. They came to us, and we syndicated a $2.5 million
revolving line of credit for this company, a company that does
about $40 million in revenue and have preserved 220 jobs.
We, in our practice, have found that saving jobs in low-
income communities is far more robust than trying to create
jobs in low-income communities. The demand for our services has
spiked as a result of this financial crisis that we are in.
One of the things that I would like to suggest to the
committee is that the American Recovery and Reinvestment Act
superseded or laid to the side the need to have matching funds
when a CDFI was seeking a financial assistance grant. I would
urge the continuous, at least through this existing fiscal year
or the coming fiscal year, of the waiver of that match. Finding
matching funds for an FA grant from the CDFI Fund is almost
nonexistent.
One of the things that I want to leave with the committee
is that the CDFI community is a very robust network of highly
committed, on-the-ground financial executives and professionals
who know how to invest in low-income communities because we
live in the low-income communities.
One of the things that we do is provide a high degree of
technical assistance to these businesses. And, as such, we have
found that our underwriting, coupled with the technical
assistance and living with these businesses, has resulted in
high performance on the part of these loans.
I want to thank the committee for the privilege to testify
today, and thank you very much.
[The prepared statement of Mr. Moncrief can be found on
page 108 of the appendix.]
Mr. Watt. Thank you so much for your testimony.
Ms. Barrera, you are recognized for 5 minutes.
STATEMENT OF JANIE BARRERA, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, ACCION TEXAS-LOUISIANA
Ms. Barrera. Thank you very much for the opportunity to
speak today.
ACCION Texas is the Nation's largest nonprofit micro
lender. We began our history in 1994, and we have a record of
sustained growth in size and footprint. Our mission as a
nonprofit organization is to provide credit to small businesses
that do not have access to credit from traditional sources.
Over our history, we have been significant beneficiaries of
the CDFI Fund. Since 1996, the Fund has awarded ACCION Texas
$6.8 million in a combination of grants and loans for loan
capital, all of which were deployed, on the average, within 24
months of receipt. These funds have been essential in our
expansion beyond our initial office is San Antonio to 14
offices across the States of Texas and Louisiana.
Eighty-two percent of our small-business owners are
minorities, and 49 percent are women. We have disbursed over
10,000 loans, totaling $94 million, to over 7,000 small
businesses in our market. The average loan size is $14,000, and
the average credit score of one of our customers is 575. We
have a historical loss rate of 6 percent. Funds disbursed
directly resulted in the creation of 2,200 jobs and the
retention of 4,000 more.
The importance of the CDFI Fund in maintaining this level
of performance becomes even clearer in challenging economic
times, when funding from other sources is often reduced or
curtailed. The recent economic downturn has had a substantial
impact on our activities, both positive and negative. Over the
last 40 months, we have disbursed an average of $1 million
every month. New loans originated increased in 2009 to a record
$16 million with overall portfolio growth of 20 percent, to $26
million.
We have used our portfolio repayment experience, along with
appropriate credit underwriting standards, to develop a
proprietary underwriting platform to evaluate loan requests. We
use this platform to support the CDFI industry. We underwrite
and perform the backroom services for 13 other CDFIs throughout
the country.
Despite the consistent 20 percent annual growth in our
portfolio, the ever-increasing demand for our services and the
associated costs continue to provide challenges from a
liquidity perspective. We continue to maintain a heavy reliance
on fund raising to support our growth. A current example is our
pending $2 million CDFI Fund request to provide loan capital
for continued expansion in Louisiana. We opened up our first
Louisiana office in New Orleans in April of 2009.
At the State level, I would like to give an example of a
State program that is no longer active because the fund sits
empty. It is called the Texas Capital Access Program, TCAP.
TCAP was established during the 1997 legislative session. The
State fund helps banks and CDFIs establish loan loss reserve
funds for increased-risk loans. The program is available to
businesses of up to 500 employees. The TCAP fund helped us
disburse 830 loans, totaling over $5 million, costing the State
$93 per job. In 2010, when there were more people needing
access to capital, ACCION Texas-Louisiana and other CDFIs are
positioned to provide funding to those waiting for loans if the
dollars are available to lend. Again, this fund is inactive
because its fund sits empty.
It is our hope that recent Federal efforts to increase the
flow of funds to small businesses, such as loan guarantees or
other stimuli, are extended to CDFI intermediaries like ACCION
Texas-Louisiana. While recent efforts to encourage community
banks to provide more loan capital to small businesses are
certainly welcome, the importance of CDFI intermediaries as an
alternative growing funding source warrant the inclusion in
these programs. As noted earlier, we get the money out on the
street.
Additionally, given the urgency of demand and the desire to
more quickly stimulate an economic recovery based in part on
small business growth, I suggest revisiting the CDFI Fund
application and evaluation process to identify opportunities to
streamline and quicken the process, especially for prior
beneficiaries with a proven successful track record with CDFIs.
Our requested action steps to improve the CDFI funding
process are to: extend a higher level of funds for the program;
adjust the funding schedule to allow for more frequent
distribution than annually; modify fund restrictions and caps
to better accommodate proven fund performers; and establish a
loan guarantee fund for CDFI intermediaries using State
programs like the ACCION Texas Capital Access Program.
It is my hope that this commentary will prove to be
beneficial as you evaluate the current state and the potential
revisions of the CDFI Fund. We are very grateful to have had
the opportunity to speak today. Thank you.
[The prepared statement of Ms. Barrera can be found on page
49 of the appendix.]
The Chairman. And I now ask, if there is no objection, to
insert into the record the National Community Investment Fund
study, the CDFI Banking Sector 2008 Annual Financial and Social
Performance. Without objection, we will make that a part of the
record.
Now, we will now hear from Ms. Dorothy Bridges, president
and chief executive officer of City First Bank of DC.
STATEMENT OF DOROTHY BRIDGES, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, CITY FIRST BANK OF DC
Ms. Bridges. Good afternoon, Chairman Frank, Ranking Member
Bachus, and members of the committee. Thank you very much for
inviting me to discuss the important work of CDFI in the
context of this current economic crisis.
As the chairman mentioned, I am Dorothy Bridges, CEO and
president of City First Bank of DC. We are a regulated
commercial bank and a community development bank. We are also a
certified CDFI that serves the Washington, DC, metro area with
a focus on low-income communities.
In 2009, there were 62 certified CDFI banks with over $17
billion in aggregate total assets and a median size of $163
million. We account for less than 10 percent of the total
number of CDFIs but represent more than 50 percent of the total
assets of that sector. We target at least 60 percent of our
business activity to low- and moderate-income, LMI,
communities. As depositories, we use our equity capital to
raise 8 times the amount in deposits to support the direct
lending that we do.
Our lending has had a ripple effect far beyond our direct
customers because it sparks further revitalization. As an
example, Columbia Heights is a DC neighborhood that was
abandoned by commercial and retail businesses for 40 years. In
2005, City First Bank invested $14.5 million in New Markets Tax
Credit allocation to restore the Tivoli Theatre, which was an
anchor for a mixed-use project that included a grocery store,
housing, commercial, and retail space. The project created jobs
for local residents, restored the property to the tax base, and
sparked a new round of commercial and residential investment in
that neighborhood.
We believe our communities deserve the same economic
opportunities as the mainstream communities and that credit is
essential for recovery. Due to the past disinvestment, our
communities are more challenging and more expensive to serve
than others. Products are often customized, loan sizes are
smaller, and higher loan loss reserves are often needed. Harsh
economic times like this only makes this worse.
While predators have fled the neighborhoods, we remain
ready to serve the neighborhoods. Loan demand is strong, but
the extended recession has left some CDFI banks unable to fully
respond to demand due to the portfolio and regulatory
challenges.
Liquidity is also a challenge for us, as regulators
classify reciprocal CDAR deposits as brokered despite strong
evidence that they are a stable source of CDFI funding.
Finally, encouragement by regulators to maintain higher
capital ratios raises the bar for us. For our communities, this
results in a tightening of credit and a suppression of economic
activities.
City First Bank has had a profitable year in 2009, but we
are still adversely impacted, as the downturn has devastated
our neighborhoods and threatens the gains we have worked for
over the past decade. The CDFI Fund is an invaluable partner to
us. Without it, our bank would probably not exist.
Beginning with an initial CDFI investment in 2000, we have
participated in the Bank Enterprise Award, CDFI Financial
Assistance, and New Markets Tax Credit programs. We have grown
from a zero base to $156 million in total assets and have
averaged over the last 2 years $30 million in lending, mostly
to small businesses.
My recommendations to the committee to help support the
important work of CDFI banks are: one, support the Community
Development Financial Institution Coalition request for $300
million in Fiscal Year 2011, including the restoration of
funding for the Bank Enterprise Award program; two, provide
oversight to ensure that the community development capital
initiative program maximizes the participation by insured CDFIs
and provides capital in an expeditious manner; three, help to
support our efforts to count CDARS reciprocal deposits as core
deposits; and four, recognize that the CDFI Fund's programs are
sound, well-designed, effectively implemented, and highly
impactful in needed communities as you consider
reauthorization.
Thank you very much for letting me share CF Bank's story.
We look forward to working with the committee to ensure lower-
income communities are not left behind in this recovery.
[The prepared statement of Ms. Bridges can be found on page
52 of the appendix.]
The Chairman. Thank you.
And next, we will hear from Ms. Tanya Fiddler, who is the
vice president for programs and operations for the First
Nations Oweesta Corporation, Cheyenne River Reservation.
STATEMENT OF TANYA FIDDLER, VICE PRESIDENT OF PROGRAMS AND
OPERATIONS, FIRST NATIONS OWEESTA CORPORATION, CHEYENNE RIVER
RESERVATION
Ms. Fiddler. Thank you, Chairman.
``Mitakuyapi, Tuktel He Najin Oyate Wiyankapi Win Lakota
emaciyapi na Tanya Fiddler English emaciyapi, k'sto.''
To all of you, my Lakota name is, ``She Stands Where the
People Watch Her Woman,'' and my English name is Tanya Fiddler.
I am an enrolled member of the Cheyenne River Sioux Tribe. And
I have run a nationally recognized Native CDFI in Eagle Butte,
South Dakota, for the past 10 years. As the chairman said, I
have recently taken a position as vice president of programs
and operations at First Nations Oweesta Corporation in January,
and I am the co-chair of the newly formed Native CDFI Network.
Let me begin by saying ``Pilamaya ye,'' thank you for the
opportunity to appear before you on behalf of Oweesta and our
Native communities throughout the United States, including
Alaska Native and Native Hawaiian communities, some of the most
impoverished communities in our country.
I have come here today to be a witness to the unique role
that CDFIs play in Native communities and have included their
innovations and successes in my written testimony, so I hope
that you are able to see those. I have also included
recommendations to continue the momentum of the Native CDFI
industry in alleviating poverty and our double-digit
unemployment rates, recommendations like giving the Native
initiatives a permanent place in the Fund's authorizing
statute.
Oweesta is a certified national Native CDFI intermediary
that provides training, technical assistance, and investments
to help Native communities across the country establish
sustainable, vibrant, and healthy economies. Self-sufficiency,
wise resource management, and entrepreneurship are all
traditional Native values. And over the last decade, Oweesta
has been leading the movement to renew these values in modern
Native communities.
The movement we are part of is greatly enhanced by the
support Native communities have been receiving and will
continue to receive from the CDFI Fund's Native Initiatives
Program, and I have a little history on it. In 1999, the CDFI
conducted the Native American lending study that examined
access to capital and financial services in Native communities
and identified 17 barriers to Native economic development. The
CDFI Fund responded by launching the Native Initiatives program
in 2002--this, in and of itself, an innovation and success that
has spurred our work at Oweesta to develop national CDFIs and
provide critical funding for training and lending to Native
CDFIs on the local level.
To date, the CDFI Fund has made 220 awards totaling $46
million to Native CDFIs, including Oweesta, serving over 100
impoverished Native communities. At the time the Native
initiative was launched, there were nine certified Native
CDFIs. Today, I have just added two, there are 57 Native CDFIs.
So the growth in the industry has been incredible.
Why is the CDFI Fund's role so important? It is because
Native CDFIs are the leading source of capital for small
business, homeownership, and asset building in reservation
communities that historically have not been served by
mainstream financial institutions, making them great targets
for predatory lenders that have been happy to fill that void.
One of the areas where Oweesta has done extensive work is
the Cheyenne River Indian Reservation. The reservation
encompasses Dewey and Ziebach counties, two of the poorest
counties in America. In 2000, 80 percent of the Cheyenne River
population was Native American, but less than 1 percent of the
businesses were Native-owned. This disparity provided immense
opportunity for the start-up of Four Bands Community Fund, a
Native CDFI that provides entrepreneurship and asset-building
services to the reservation.
I am here to say that communities on my reservation, like
many other Native communities with the Native CDFI, are
experiencing real changes. We are replacing poverty with
entrepreneurship and financial literacy skills. Having recently
been the executive director of Four Bands, I would like to
share a story to demonstrate the effect of the CDFI's programs
and what they are doing to help play a role in getting people
on the Cheyenne River Reservation out of poverty.
Four Bands began lending in 2002, and one of our first
$1,000 micro loans went to an unemployed tribal member who
completed our business training class and wanted to start a
plumbing and heating business. He needed to put tires on his
truck so he could travel to jobs. We made the loan, and he was
on his way.
In 2006, D&D Plumbing and Heating was able to access a
$200,000 loan from an authorized lender with an SBA guarantee--
which is a rarity, to see SBA guarantees in Indian country, as
well--in order to construct a building and a machine shop. He
was employing five to seven tribal members and was partnering
with Four Bands to provide some youth entrepreneurship
internship opportunities in our community, as well.
Early in 2009, the effects of the recession started to hit
Cheyenne River, and D&D came back, asking for help. We were
able to take the loan on, and help them preserve their
business--I see I am out of time.
The Chairman. Don't worry about the time.
Ms. Fiddler. Well, then I will finish my story.
The Chairman. Yes, keep going.
Ms. Fiddler. He contacted us, asking for assistance. We
took the loan back, brought it in-house, helping to preserve
their business credit. We provided financial and marketing
assistance to his business in order to help him get through
this economic downturn.
To date, Four Bands has trained nearly 2,000 people in
personal finance and entrepreneurship skills. Many of them are
youth. We have distributed $1.5 million to micro, small
business, and credit building loans; committed $230,000 in
match savings for individual development accounts for asset
building; have supported over 70 new businesses, new and
existing businesses, creating 150 jobs; and have rehabilitated
30 store fronts. We have a water shortage, and we are not able
to have new construction. We have also worked with the Cheyenne
River Sioux Tribal Government to make policy improvements that
support private business and personal financial skills among
our members.
I conclude by saying that the Native communities have come
a long way. Ninety-five percent of our services serve exactly
the low-income community.
On behalf of our communities, I say, ``Wopila Tanka,'' with
great thanks, to the Fund for all it has accomplished and to
the current Administration and Congress who have supported
Native economic development by securing the Native Initiatives
as a line item in the 2010 and 2011 budget.
And, again, thank you.
[The prepared statement of Ms. Fiddler can be found on page
73 of the appendix.]
The Chairman. And, finally, Judy Kennedy, who is the
president and chief executive officer of the National
Association of Affordable Housing Lenders.
Ms. Kennedy?
STATEMENT OF JUDITH A. KENNEDY, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, NATIONAL ASSOCIATION OF AFFORDABLE HOUSING LENDERS
(NAAHL)
Ms. Kennedy. It is great to be here talking about such
successful investment.
The Nation's leading mission-driven nonprofit lenders for
affordable housing--two of my favorites happen to be in
Massachusetts and Alabama--are here today to talk about how
much more we could do to help sustain our Nation's economic
recovery with more construction private-sector jobs if we only
had more capital and liquidity.
NAAHL's mission is to increase the flow of private capital
lending and investing in low- and moderate-income persons and
areas. We represent 100 organizations in moving private capital
to those in need. This ``who's who'' of private-sector lenders
and investors includes major banks, blue-chip nonprofit
lenders, CDFIs, and others in the vanguard of affordable
housing. Seventy percent of NAAHL's nonprofit lender members
are CDFIs, and the rest are high-performing mission-driven
organizations.
Main Street loan demand has dramatically increased for
financing affordable multi-family rental housing over the past
2 years and for the small businesses, the Ma and Pa landlords
that drive the economies of our local communities. But
successful mission-driven nonprofit lenders are struggling more
than ever with the need to find capital and liquidity to meet
the demand both in urban and rural markets to close the
existing gap.
The bottom line is that experienced mission-driven
nonprofit lenders seem to be the victims of their own success.
They have few troubled assets. Most have never had a loss on a
loan. If they have, they count their losses in basis points. So
the crisis has obscured their unique contributions and their
unique ability to help turn this economy around.
Our nonprofit lenders finance affordable housing that
families, seniors, and the disabled are proud to call home. And
they also preserve expiring portfolios of Section 8 project-
based contracts in places as diverse as Massachusetts, New
York, Alabama, California, Illinois, Oregon, and the Carolinas.
Recognizing these nonprofits' important mission and stellar
track records, throughout the crisis, their bank investors have
honored their traditional commitments to these loan funds. This
private capital has enabled the lenders to continue to finance
preservation and construction for Main Street and businesses in
their States. But because the demand has so outstripped the
supply, we have the following specific recommendations to
increase lending on Main Street and financing for affordable
multi-family rental housing--two things you could do today and
two things that could take a little longer.
Number one, expand the Treasury's 2 percent capital
initiative to nonbank CDFIs. The Federal Housing Finance Agency
has just completed an extensive rulemaking process that hopes
to equate nonbank CDFIs with current standards for CDFIs, and I
think that is a great place to start. The Emergency Economic
and Stabilization Act was enacted to restore the flow of credit
to small businesses with a primary purpose to promote jobs and
economic growth. We think now is the time to utilize that
authority.
Number two, something else you could do today is to
increase access to the capital markets for Main Street
borrowers through the GSEs or other government programs. Fannie
Mae and Freddie Mac continue to be AWOL in financing the
landlords of small multi-family properties on Main Street. Our
nonprofit lenders--again, the ones who have no losses or losses
of under 1 percent--currently hold more than $1.5 billion in
seasoned, performing, low-balance multi-family mortgages.
Replenishing these loan funds would spur thousands of private-
sector jobs just in 2010.
Two things that could take a little longer: Update the
Treasury Department's CDFI Fund regulations for a variety of
purposes. For example, in the Carolinas, the Community
Investment Corporation of the Carolinas doesn't qualify for
CDFI funding because their parent organization, the State
Bankers Association, can't document that 60 percent of their
mission is for low- and moderate-income people. But 100 percent
of CICCAR's mission is for low- and moderate-income people, so
we think you need to update the definition.
You also need to update the 2003 regulation changes that
caused almost all of NAAHL's CDFI members to no longer be
eligible for funding. They are outdated. They reflect a Federal
priority in 2003 that should not be governing 2010 and 2011
decisions, so we urge that you do that soon.
Finally, a national insurance program offering protection
against the top loss on multi-family, affordable rental
properties could go a long way in terms of expanding the pool
of potential investors and replenishing the supply of funds to
lend.
In the State of New York, something called SONYMA, the
State of New York Mortgage Agency, insures the top 20 percent
loss on all qualifying multi-family mortgages. This has induced
Freddie Mac, pension funds, and the Archbishop of Brooklyn to
invest in these loans, which they say for 2008 were some of the
best investments they had at 6 to 7 percent.
What impact could each of NAAHL's 25 nonprofit lenders make
if they had the means to finance just a hundred more affordable
apartments in 2010? Based on what the Home Builders tell us
about estimated 1-year impacts, if each of these 25 across the
country just did a hundred units more, it would generate--it is
amazing--$198 million in local income. It would generate 3,050
jobs. It would generate $21 million more in revenue for the
local governments.
We think now is the time to expand the program to allow at
least each of these 25 to create the jobs in the construction
activity we know is critical to recovery. The main financial
rescues of the past 18 months have eclipsed the strong
performance of these lenders. We appreciate your strong
interest in increasing loan availability and jobs on Main
Street and look forward to supporting your efforts.
[The prepared statement of Ms. Kennedy can be found on page
98 of the appendix.]
The Chairman. Ms. Kennedy, I will begin with you. And I
did, as you heard, ask the Administration to look at those, and
your specifics were among those I had in mind.
With the exception of an insurance fund, it would seem to
me you were talking about things that all could be done without
legislation. Is that accurate?
Ms. Kennedy. Yes. I am not sure about all of our CDFI Fund
recommendations, but I believe most of them stem from--
The Chairman. All right. If you would you boil that down
and send a copy to us, and we will forward it, according to
which could be done by regulation and which not.
The last, an insurance fund, clearly would be legislative.
And I would say to you at this point, we will put that one
aside for now because we will be having hearings on the 23rd
and we will begin a process that Members on both sides have
been calling for to reorganize housing finance in America. And
what you were talking about there clearly belongs in housing
finance.
And let me ask, when you talked about that insurance, is
that for subsidized--well, obviously, it is a form of
subsidized--is there an affordability limit there, is there a
rent limit or an income limit on the projects that are eligible
for that?
Ms. Kennedy. Because it is New York, almost all the
projects are subsidized. And there is an affordability--
The Chairman. Well, in your proposal for the national fund,
would there be a limit on the rents charged and the income of
the eligible participants?
Ms. Kennedy. Yes. The standard that we have used is the
typical Section 8 standards. So, for example, in Chicago they
can do preservation of affordable housing without subsidy, but
they rent to--
The Chairman. I didn't ask you about Chicago. I asked you
what your proposal is.
Ms. Kennedy. Yes, our proposal would be Section 8 eligible
tenants--
The Chairman. That if people were building--
Ms. Kennedy. Under 80 percent of varying median income--
The Chairman. So if they were building for people who were
80 percent of median or below, they would be eligible for that
insurance fund. It is just something I would say we would ask
you to--you will resubmit that to us when we have a broader
hearing.
And on the others, there are obviously varying degrees of
difficulty, but they did sound--you send us the list; we will
look at it. You can also send it to Treasury, and we will at
least get some responses.
The gentleman from Alabama?
Mr. Bachus. Thank you.
Ms. Barrera, you know, the hill country of Texas used to
have a high rate of poverty. Does it still? Does it still stand
out demographically, or what is the situation?
I am talking about 30 years ago. I was stationed at Fort
Sam.
Ms. Barrera. It is still, but that is probably a faster
growing community now. And I would say it is the people in
south Texas who are hurting the worst. They are the ones that
are at high poverty ratios. Again, there are still the
unincorporated areas, no zoning and so on. So that is really
our--the border of Texas is really the highest.
Mr. Bachus. I guess with the agriculture, it is not as
important, so it obviously wasn't a great place to raise crops.
Ms. Barrera. That is right.
Mr. Bachus. Mr. Moncrief, I have part of Appalachia in my
district. The poverty level there--and I know, Mr. Bynum, I
know the Mississippi Delta is just a tremendously poor region,
I guess Mississippi, Louisiana, and Arkansas. Appalachia is not
to that extent, I guess, is it? But what is the situation
there?
Mr. Moncrief. Congressman, when you look at the Appalachian
Mountains of eastern Kentucky, there are some of the counties
that approach 30 percent poverty.
So, the landscape is very, very drab. Just the geography
doesn't lend itself to acres of flat ground, if you will, to
build businesses. We, in eastern Kentucky, use the word
``entrepreneurship'' as the salvation of people working in
eastern Kentucky. When you look at the population of eastern
Kentucky and Appalachia, and certainly Appalachia, Alabama,
compare that to the Delta of Mississippi, Louisiana, Arkansas;
we are looking at the same situation. We all face the same
sorts of poverty levels and use exactly the same tools, which
really is the reason why this program is so vital.
Many times, we have an almost absence of access to capital.
But for organizations like ours, many people don't want to move
into rural parts of Louisiana, Mississippi, Arkansas, Kentucky,
or Alabama to do the service delivery of financial tools that
are necessary. So we are faced with stark poverty where we are.
Mr. Bachus. Thank you.
I know in Alabama we have--the parts of Birmingham that are
the inner city that are--but there is that same hopelessness
and lack of opportunity in many rural parts of our country. I
know Geoff Davis, who was a member of this committee for years,
was a very good advocate for that program. I think he realized
what Mr. Green said, that it is no respecter of color. The Rosa
Parks, the Alabama Multifamily Loan Consortium, can you tell me
a little bit about that? Is it in Montgomery?
Ms. Kennedy. I am not sure.
Mr. Bachus. I would assume that it is.
Ms. Kennedy. I think it is. Twelve years ago, the Housing
Finance Agency of Alabama approached the Alabama Bankers
Association and said, we need some entity to finance tax credit
low-income housing in Alabama. So, much like the Carolinas, or
New York, or Massachusetts, the State banking association
worked with the State housing finance agency. So now, we have
53 banks in Alabama that, every year, invest in affordable
rental housing. They pool their money. They diversify their
risk. The same thing is true in California.
And in that process, they finance with long-term, fixed-
rate mortgages, all of the tax credit properties, all of which
are eligible to under 60 percent of area median income. Rosa
Parks is for seniors and disabled, the first affordable rental
of that type in the State.
Mr. Bachus. And those facilities, in appearance and
everything else, they are very desirable.
Ms. Kennedy. You wouldn't know it had any subsidy attached
to it, and sometimes that is the goal. These are units people
are proud to call home and which are often near their families.
Mr. Bachus. Is that the one, what was the CDFI in Alabama
you were--
Ms. Kennedy. Unfortunately, our Alabama consortium is not a
CDFI. Truth in labeling, the complexity of qualifying for that
certification, and I am just going to be honest with you,
somebody said it earlier; when you are surviving as a
nonprofit, you sometimes can't afford to invest in other
resources. I have no doubt that Alabama will apply for
certification some day. But I think we need to streamline the
application process first.
Mr. Bachus. Okay. Thank you.
Ms. Waters. [presiding] Thank you very much.
Ms. Kennedy, according to your testimony, CDFI fund rules
need to be updated, including the need to prioritize leveraging
public subsidy with private capital to increase multifamily
affordable rental housing projects. Can you describe in more
detail the need for more leveraging and how this would help
your members and low-income communities in general?
Ms. Kennedy. Sure. In 2003, the prior Administration
decided to prioritize single-family homeownership and
investments in lending in certain areas. The challenge for
nonprofit multifamily lenders has been that these reflect
Federal priorities and not local priorities.
So, again, back to Alabama, the lender doesn't decide where
those properties go. The State Housing Financial Agency
allocates Low Income Housing Tax Credits according to the
State's own priorities. So if we were to go back to the pre-
2003 regulations, for example, that did reflect the ability to
leverage and the application process, did reflect
responsiveness to local needs; I think we are down to only two
of our nonprofit lenders that can qualify for funding. We could
expand the pool enormously.
Ms. Waters. Thank you very much.
Mr. Mel Watt?
Mr. Watt. Thank you.
Mr. Bynum and Ms. Bridges, I think both of you touched on a
point that I wanted to pick up on. Mr. Bynum first, I didn't
realize that this new program that the President just announced
didn't include, or I guess I never focused on it. I would have
asked the first panel why non-insured depository institutions
were not included in that. Can you give me a little history on
that? Is there some possibility that they will include it? Or
what can we do to expedite that?
Mr. Bynum. We certainly hope that will be the case. We have
worked with the Administration, with the Office of Financial
Stability for several months now, and industry representatives
have presented recommendations for including nondepositories in
the TARP program.
Mr. Watt. And what is your perception of their reaction to
that? Are they supportive, do you think or--
Mr. Bynum. I think the easiest path, and that is relatively
speaking, was to piggy-back on the previous structure that
worked with depositories and relied on the insurers to help do
the due diligence and the qualifying of who is viable and can
handle TARP funds.
Mr. Watt. But CDFIs have been vetted pretty aggressively to
get through the process. The only difference there is you are
not insured, and I guess the banking institutions are insured,
so that reduces the risk some, I suppose.
Mr. Bynum. That is right. And there is a third party
regulator that helps vet additionally. We feel that loan funds
go through a certification that is rigorous by the CDFI Fund.
The CDFI Fund will need additional resources in order to
monitor the additional entities that got TARP funds, but that
was our recommendation, is that the CDFI Fund play the role of
the regulator and monitor those loan funds.
Mr. Watt. Okay. We will try to pick up. Give us as much
information as you can about that, so maybe we can get a
coalition of people who can push the Administration on that
issue.
Mr. Bynum. Mr. Watt, I would like to mention that there is
a great opportunity, there are over 30 loan funds that have new
markets allocations with over almost a billion dollars that
cannot get debt that could be leveraged if loan funds had
access to TARP funds.
Mr. Watt. Give us some information on that, too. We will
try to push it. But it won't help if the ones who are eligible
for this new fund or new funding don't use it.
So, Ms. Bridges, you fit in that other category. You heard
me ask the first panel about whether this was going to be
aggressively used by the insured depository institutions who
are eligible for it. Do you think this is a robust enough
program that you and other banks similarly situated, other than
the uninsured ones that I just got through talking about; are
you going to use it?
Ms. Bridges. Representative Watt, thank you very much for
that question. Without a doubt, the Community Development
Bankers Association that represents the 62 certified CDFIs,
bank certified CDFIs, have been lobbying pretty hard for this.
It is certainly very cost effective for us. We tend to have
greater operating expenses than traditional banks. And it also
offers us an opportunity to have that kind of cushion for a
longer term than in the past. And certainly, this is something
that our, my colleagues have been lobbying to have on the table
for us to be able to spur our additional lending in that area.
Mr. Watt. So are there any impediments in there? What
about--I saw something in the paperwork I was given that says
you can't pay dividends. You can't pay dividends to your
existing stockholders, or, and maybe I was misreading it. Is
that an impediment?
Ms. Bridges. You are correct. For the CitiFirst Bank, it is
not an impediment. We currently do not pay dividends. Most of
our stock shareholders are public institutions or institutional
investors where we currently do not--
Mr. Watt. Some of these entities do pay dividends to their
stockholder companies.
Ms. Bridges. Yes. And there are a number of institutions
that are also CDFIs that were awarded the original TARP
program, and they have, in many cases, withheld dividend
payments to some of their shareholders. For the most part, they
have worked around that as an issue. That still is a little bit
of a stumbling block for some of us.
Mr. Watt. Thank you so much for your testimony. It has been
great to hear some good experiences out there in the community,
even though they need to be replicated and expanded. Thank you.
Ms. Waters. Thank you very much.
Mr. Green?
Mr. Green. Thank you, Madam Chairwoman.
Ms. Barrera, good to see you again. And of course, I know
of your good works in Texas. You mentioned streamlining the
process, and you talked about prior beneficiaries. Would you
give us a further explanation in terms of how it would be
beneficial to have the application process benefit prior
beneficiaries who have a good track record?
Ms. Barrera. Thank you, Representative Green.
Yes, the fact that the customer comes in is not a problem
to us, and we have customers coming in and applying. Our
problem is the liquidity. So if you have an organization that
has a good track record, a good track record of deployment, not
sitting on the money, but putting it out on the street as soon
as you get it, that is what we are recommending for the CDFI
Fund, to look at someone, for example, our organization who has
been deploying the funds when they get them since 1996 from our
first award, so that it becomes a relationship of just--that is
the way we work with our customers as well, where we build that
relationship that is there. And of course, there is
accountability behind it as well, that the numbers don't lie in
terms of our audits and so on; that if you continue to perform
at this level, then we should be in a different category, if
you will, than struggling, unsustainable, newer CDFIs that need
more technical assistance and so on.
But, Representative Green, the first 12 years of our
operation, I believe we were in the laboratory stage. Micro
lending, micro finance comes from developing countries. And a
lot of organizations that started micro lending back in the
early 1990's are no longer in existence. We are now the largest
micro lender serving these two markets and helping 13 other
CDFIs across the country reach scale as well.
So, in that laboratory stage, we found out what works and
what doesn't work. We now have a machine. What it needs is gas
to continue to move the machine. And so if we could, then,
raise great standards that we would all be working with and
towards, then I think the CDFI allocations would then be
benefiting more people. There is a whole theory, is it breadth
or depth? Do you want to help as many people, or do you want to
help fewer people but go deeper? I think there is a need for
both, but in terms of technical assistance on the depth part,
but on the breadth part, access to capital, as we have already
described, is such a need in our country right now.
Mr. Green. You have forged relationships with banks, have
you not? Explain how you have worked your relationships with
banks, please.
Ms. Barrera. Because of the Community Reinvestment Act,
about a third of our funds do come from banks. And
specifically, one example I would like to share, which was the
first in the country, the first in the United States, is the
relationship that we have with Citi; that Citi wanted to do
micro finance in the United States and didn't know how to
underwrite these loans, but went and looked at our portfolio,
looked at how we do our business and invested $30 million that
they, we are selling part of our portfolio every month to Citi.
So it is a secondary source, right, for us which was never--
unheard of because we are not--in our industry, it is hard to
get ratings. We are not rated. And so by them taking--what we
are doing is sharing the risk and sharing the wealth, the
revenue with Citi. And we work with many, many other banks
across the country where they either invest in us for a return
or provide us grants through their foundations. So that is how
we get our operational funds.
Mr. Green. And have you been moving into Louisiana, after
Hurricane Katrina? Because I know that Texas is in your name,
and so obviously you are in Texas. But I think you are bigger
than Texas, are you not?
Ms. Barrera. That is correct. We are ACCION Louisiana as
well. And so we were asked to go in there, and were provided
funds. And that, again, came from banks, and it came from
foundations and municipalities. We presently have offices in
New Orleans and Alexandria. We will open up an office in
Shreveport within the next 2 months, and then in Baton Rouge,
hopefully, by the end of the year.
Mr. Green. Affordable housing, is that a part of your
portfolio?
Ms. Barrera. No, sir. A hundred percent of our portfolio
are small business loans.
Mr. Green. Okay. Well, who is dealing with the affordable
housing portfolio?
Okay. Ms. Kennedy, tell me a little bit, if you would,
about your affordable housing portfolio. Have you gone into
areas, say, for example the Lower Ninth Ward in New Orleans? Do
you have any projects in that area?
Ms. Kennedy. We don't have a member in Louisiana. We worked
very hard for a very long time to get the Louisiana Bankers
Association to follow in the model of Alabama, California,
Oregon, and Hawaii and start a multibank affordable housing
lender. But, to my knowledge, it never happened.
Mr. Green. Okay. I will yield back. My time is up.
Thank you, Madam Chairwoman.
Ms. Waters. Thank you very much.
Mr. Cleaver?
Mr. Cleaver. Thank you, Madam Chairwoman.
Ms. Bridges, and the question is to you and Ms. Fiddler. I
know where her bank is located. Can you tell me where in D.C.
your bank is located?
Ms. Bridges. Our branch is located at 1432 U Street, right
in the historic district.
Mr. Cleaver. Have your CDFI loans performed well?
Ms. Bridges. For the most part, our CDFI loans are our core
loans in the bank, and they have performed well. However, we
have had, like many traditional banks, some problems with and
we have seen some deterioration.
Mr. Cleaver. Well, considering the economy--
Ms. Bridges. Yes. We are--
Mr. Cleaver. Ms. Fiddler, would you say the same thing?
Ms. Fiddler. I think they are holding pretty strong for the
most part. Dewey and Ziebach Counties are very rural and
remote, less than one person per square mile, so that the
markets available for folks out there, we do mainly Main Street
private sector, trying to create and stimulate economy outside
of this because we don't see CRA; we are creating economy. So
it is just a little bit different version than the rest of the
scope. But for that high-risk market where you don't have any
other options, I think they are doing very well--less than 1
percent defaults.
Mr. Cleaver. Well, do you think it would be interesting if
we compared CDFIs, their loans, with some of the other banks,
depository banks that are--many of them are in trouble, have
been in trouble? I don't know if there is any data available,
but it would be interesting to compare the performance of
loans. The reason I raise that question is, I think, despite
the relatively high success in CDFIs, we find that the funding
is almost--the number of applicants who seek CDFIs is twice the
number that receive the loans because we don't have the--the
pot is virtually empty. And I have tried unsuccessfully, with
the last panel, and one of my colleagues did the same, to try
to find out what do we have to do to get additional dollars? I
am assuming that all of you would like to have additional
dollars. I know that is a difficult question, but struggle
through it and tell me yes. All right. We have $250 million in
grants in 2010. But as I said, that is one-half, exactly one-
half of the people who applied. So I am--some of these
questions are for the Treasury, obviously. But they are gone,
so I need to find out from you, and these are probably
softballs to you guys. But if we had more money, would we be
able to better meet the demand and still make good loans?
Ms. Kennedy. Let me just say that those numbers you quoted,
Mr. Cleaver, about half being denied don't even reflect the
true need. There are hundreds of CDFIs that don't even apply
since 2003 because the regulations have so changed what is
funded that it is not worth Alabama getting certified; it is
not worth Massachusetts applying. California did apply this
year and got turned down despite their stellar track record.
So, for example, our 25 nonprofit CDFIs, nonprofit mission-
driven lenders, could do double their 2008 production this year
if they had liquidity.
Mr. Cleaver. Well, in the difficult areas where you work,
are you seeing competitive applications going forward for new
market tax credits?
Mr. Bynum. In Mississippi, where, arguably, there should be
a significant investment by the CDFI Fund, only $480,000 out
of, I think, $40 million made to Mississippi.
Mr. Cleaver. Say that one more time, please.
Mr. Bynum. $480,000 out of a total of $170 million in
financial assistance awards were in Mississippi, the poorest
State. On the new markets, only $40 million of $14 billion in
Mississippi. There were applications. I can't speak to the
quality of the applications. The CDFI Fund would have to do
that. But there is certainly a demand and there is a viable
demand for increased funds in our State and in other severely
distressed areas.
Mr. Cleaver. Well, the red light is on, but I think the
point has been made.
Thank you, Madam Chairwoman.
Ms. Waters. Let me just thank the panel for being here
today with the most informative testimony. And the Chair notes
that some members may have additional questions for this panel
which they may wish to submit in writing. Without objection,
the hearing record will remain open for 30 days for members to
submit written questions to these witnesses and to place their
responses in the record. The hearing is adjourned.
[Whereupon, at 4:26 p.m., the hearing was adjourned.]
A P P E N D I X
March 9, 2010
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