A New Resource: Four CDFIs to Offer Long-Term Loans for Housing, Other Eligible Projects
By Glenn Petherick
5 min read
Four community development financial institutions (CDFIs) plan to offer long-term fixed-rate first mortgages for affordable apartment projects and other eligible developments using funds raised under the new federal CDFI Bond Guarantee Program just now getting underway.
This will mark a significant shift for CDFIs, which to date have generally only had access to short-term capital and have thereby largely been limited to offering short-term loans.
On September 30, the U.S. Department of Treasury announced approval of term sheets for the four CDFIs chosen to participate in the first year (FY 2013) of the two-year program: Clearinghouse CDFI, Enterprise Community Loan Fund, Local Initiatives Support Corporation (LISC), and The Community Development Trust (CDT). In the inaugural round, these CDFIs will use the proceeds from up to $325 million in federally guaranteed taxable bonds issued on their behalf to provide loans for eligible purposes. The first bonds could be issued by year-end with the proceeds available to the four CDFIs starting in late 2013 or early 2014.
CDT was approved for $125 million in bonds; Enterprise and LISC, $50 million each; and Clearinghouse CDFI, $100 million.
CDFIs are specialized financial institutions that provide funding and technical assistance to support affordable housing, community development, and economic development projects and activities in underserved, often distressed communities. CDFIs include regulated institutions, such as community development banks and credit unions, and non-regulated institutions, such as loan and venture capital funds.
Long-Term Mortgages Now Possible
Officials at the four CDFIs anticipated using the new funds to provide loans for the same types of projects they have been financing all along. However, the new program will enable them to offer long-term fixed-rate first mortgages of up to 29.5 years – the maximum term of the bonds. The interest rate on each loan will be set when the CDFI draws down the funds from the U.S. Treasury to fund loans, and determined by the prevailing rate on the benchmark Treasury obligation corresponding to the loan term.
“We’re excited about this program because it offers us, for the first time, a long-term source of financing,” said Toby Levy, Executive Vice President and Chief Financial Officer of LISC. “For years we have financed long-term assets, such as buildings, charter schools, and health care centers, and now we have a source of financing that actually fits the asset that we are funding.”
Lori Chatman, President of the Enterprise Community Loan Fund, indicated that the bond guarantee program will be especially beneficial for community development-type projects such as charter schools and health care facilities that unlike affordable housing generally haven’t had other options to date in terms of long-term, fixed-rate financing.
Plans for Funds
LISC and Enterprise will use the bond proceeds to help finance affordable housing and other commercial development projects. Enterprise will use the proceeds for several new products, including fixed-rate permanent mortgages of up to $2 million for affordable multifamily rental housing projects. Levy said LISC will offer fixed-rate permanent first mortgages of up to $5 million for affordable multifamily housing projects, charter schools, and health centers.
Joseph Reilly, President and CEO of The Community Development Trust (CDT), expects CDT to use the funds to originate new long-term fixed-rate mortgages to finance the development or acquisition of affordable multifamily rental housing properties and to purchase existing loans or portfolios of loans on affordable multifamily properties. He anticipated many properties will have low-income housing tax credits, as is the case now. “We’re hoping that the money will be available for us to draw down by the end of this calendar year,” said Reilly, noting that CDT’s average loan size tends to be from two to three million dollars.
Enterprise, LISC, and CDT expect to offer loans for eligible projects nationwide. Clearinghouse CDFI will offer loans only in California and Nevada as it does now.
“Our plan is to lend and deploy these funds within 24 months,” said Clearinghouse CDFI Chief Investment Officer Jay Harrison.
“Having access to this long-term funding will allow us to better customize our loan products with respect to the term we can offer our borrowers,” said Harrison. “Historically one of our problems has been that most of our funding doesn’t go beyond 5 or 7 years, given that we typically fund ourselves through other financial institutions [that are] seldom willing to go beyond that 5- or 7-year time frame.” As a result, projects funded by CDFI Clearinghouse have usually had to refinance after five to seven years.
Harrison said the bond program also offers Clearing-house CDFI the flexibility to borrow for a shorter term – anywhere up to 29.5 years. He also indicated that the program could provide an opportunity for the organization to develop a product consisting of a construction loan that converts to a permanent mortgage.
Contact Persons
Clearinghouse CDFI
Jay Harrison, 949-528-3069
Enterprise Community Loan Fund
Noni Ramos, 415-395-0956
LISC
Elise Balboni, 212-455-9370
The Community Development Trust
Brian Gallagher, 212-271-5096
