Housing stability is a crucial foundation for job stability. When I was at Portland Habitat for Humanity, I saw firsthand how having a place to call home helps families to thrive. While homeownership is important, affordable rental homes are also essential. Private capital has an essential role in the development and preservation of affordable housing. In Oregon, the Network for Oregon Affordable Housing brings together member banks with capital and its in-house technical expertise to underwrite development deals to bring affordable housing to all regions of Oregon. NOAH serves as a great model that other states would do well to emulate.
— Senator Jeff Merkley (D–Oregon)
- Multibank consortia share the risk, reduce the cost of lending, and pool their expertise to meet the affordable housing development needs of their respective communities.
- As a bank consortium, NOAH uses financing and technical assistance tools to increase housing opportunities for low- and moderate-income households and preserves the state’s at-risk stock of affordable housing.
- Implementing affordable housing has a significant, positive impact on local economies that provides jobs, stimulates business, and enhances government revenues.
Before (top) and after pictures of Walnut Park illustrate the result of NOAH’s financing and technical assistance that helps preserve and build affordable housing for low- and moderate-income families, seniors, and special needs residents.
Farmworker Housing Development Corporation
Private dollars are helping alleviate the shortage of quality, affordable rental housing, especially in the burgeoning field of community development finance, in which bankers form partnerships to finance community development activities. Among the important players in this field are multibank consortia, which pool their funds to finance affordable multifamily housing. With the advent of the federal Low Income Housing Tax Credit (LIHTC) program in 1986, commercial banks accustomed to working primarily with short-term capital were asked to provide long-term capital, permanent mortgages, and related services to affordable housing projects. In the early 1990s the first multibank consortia formed to address this challenge. The consortia not only share the risk and reduce the cost of lending to any single member but also pool their expertise on behalf of affordable housing in their respective communities.1
Guided by the principle that banks do well when their communities do well, banks form consortia so that community development investments, at lower cost and risk, can be tailored to meet local needs such as affordable rental housing while also meeting the requirements of the Community Reinvestment Act of 1977 (CRA). CRA charges national banks to provide ongoing deposit and credit services and to meet continuing credit needs of the communities in which they are chartered to do business. Federal regulators assess each financial institution’s compliance with the CRA, and the results are considered if the institution applies to open a branch, merge with another, or become a financial holding company. The performance standards used in the assessments include community development investments and services that are not required but can boost an institution’s rating from satisfactory to outstanding. These voluntary community development activities include affordable housing and community services for low- or moderate-income (LMI) people, activities that promote economic development by financing small businesses or small farms, and activities that revitalize or stabilize LMI areas.2
Consortia with community development as a primary objective can expand their resources beyond those brought by member banks and investors by qualifying as a Community Development Financial Institution (CDFI), as certified by the U.S. Department of the Treasury. CDFI institutions that provide capital, credit, and financial services in underserved communities can apply for funds to be used for economic revitalization and community development.3
Bank consortia can be flexible in their approach to community development activity so long as it profits the public and is inclusive of LMI members of the community. The Office of the Comptroller of the Currency explains that community development investments by consortia might include forming community development corporations or partnerships with community-based organizations; creating loan pools to provide capital for affordable housing development; revitalizing LMI areas or underserved rural areas; and participating in tax credit programs like LIHTC, New Markets Tax Credits, and Historic Rehabilitation Tax Credits. The actual form that a multibank consortium takes is determined by the “specific credit issues that need to be addressed and the economic, social, and political climates that are contributing to challenges and solutions addressing those needs.”4 The bank partners themselves decide how the consortium will contribute to those solutions and what financing gaps it will address.
Nationwide, consortia play key roles in addressing affordable housing challenges in their own communities.
Services provided by bank consortia are generally of two types: (1) capital-based services focused on financial backing of loans and (2) knowledge-based services realized through technical assistance; guidance; and expertise in underwriting, loan servicing, and assets management. The member banks determine their geographic coverage area, a crucial decision that must take into account adequate coverage, the potential to expand and diversify borrowers, and the ability to spread risk. As John Epstein, division manager of community lending and investment at Wells Fargo, explains, “Selecting an appropriate geographic area for consortium services is key to achieving a critical mass of expertise, advocacy, and support for affordable housing.”5 Consortium members also decide the lineup of investors and other partners pertinent to the mission, products and lending strategies to offer, appropriate organizational and operational structures, and service targeting consistent with consortium objectives.6
The activities and products developed through these partnerships are as diverse as the local and state community development needs they are designed to meet. One such partnership, the Network for Oregon Affordable Housing (NOAH), is a 22-member nonprofit bank consortium that directs its energies and resources to the affordable housing challenges in Oregon, which ranks among the country’s least affordable rental markets.7 More than 63 percent of Oregon renter households are low-, very low-, or extremely low-income households. One-quarter of renter households in the state spend more than 50 percent of their income on rent.8 Federally subsidized rental housing stock in the state is shrinking at an alarming rate; contracts for 8.1 out of 10 privately owned and federally subsidized rental units are scheduled to expire unless renewed within the next 5 years.9 An additional 2,700 households in need of affordable housing were displaced by manufactured home park closures between 1997 and 2008, further intensifying the demand.10
In this environment, NOAH’s primary mission is to revitalize underserved communities by increasing housing options for LMI households and preserving Oregon’s at-risk stock of affordable housing. Established in 1990 under the leadership of the Oregon Bankers Association, the statewide nonprofit corporation uses various financing and technical assistance tools to help developers build and renovate multifamily affordable housing developments throughout Oregon, including senior residences, farmworker housing, special needs facilities, and mixed-income housing.
NOAH is governed by a 12-member board of directors consisting of bankers, professionals, and community group members. The loan pool formed by the member banks is a blind pool, meaning that the banks participate in any loan that the board’s loan committee approves. In addition to bankers, the loan committee includes two public-sector representatives charged with evaluating the public benefit of any loan under consideration. NOAH’s 10 staff members work through the intricacies of financing, negotiate with member financial institutions, and engage local leaders and the housing development community.
At the heart of NOAH is a permanent loan program funded by its member banks. As of June 30, 2010, 6,445 units of housing had been financed with 139 permanent loans since the consortium’s inception. These loans, totaling more than $158 million, were leveraged to cover $726 million in total project costs. NOAH also offers predevelopment loans and a tax-exempt bond financing program that is now dormant because of poor bond market conditions. Finally, NOAH staffs a statewide initiative to preserve at-risk federally subsidized rental properties. The consortium’s Oregon Housing Acquisition Fund loans had preserved 416 units of federally subsidized housing as of December 31, 2010.11
An apartment building designed for the elderly or disabled that NOAH helped to finance reduces the financial burden for residents and improves their quality of life while also having a positive influence on the local economy. Reach CDC; Traci Hill
Nationwide, consortia such as NOAH play key roles in addressing affordable housing challenges in their own communities and may partner with other consortia. NOAH, for example, is one of 12 statewide consortia encompassing 450 participating financial institutions loosely organized as the Association of Reinvestment Consortia for Housing. The participating members network to share knowledge and best practices as well as assist policymakers on legislative and regulatory issues.12
According to NOAH’s executive director, Bill Van Vliet, building and preserving affordable housing benefit financial investors through goodwill, shared risk, reduced lending costs, and adherence to legislative requirements. LMI households that have affordable rent payments experience an increased income and quality of life that reduce the risk of homelessness and are linked to improved health, safety, and school performance. Finally, Van Vliet notes, every dollar spent on affordable housing has both an investment leverage effect and a multiplier effect.
Implementing affordable housing has a significant, positive influence on local economies that provides jobs, stimulates business activity, and enhances the loss/gain ratio in revenue for local and state governments. In one example, NOAH helped finance a mixed-use housing project designed for seniors and disabled persons who earned 60 percent or less than the area median income.13 The total project cost of $11.6 million was calculated to have a positive impact of $21.3 million on family incomes, business coffers, and government revenue; an employment impact of 168 jobs; and a statewide labor income impact of $7.4 million.14
The Association of Oregon Community Development Organizations localized a model created by the National Association of Home Builders to calculate the economic impact of affordable rental housing that member organizations developed between 1990 and 2002. After 12 years, the returns on investing $94 million in 7,562 affordable housing units had helped generate 12,212 jobs, $393 million in wages, and $23 million in income taxes. In addition, the original investment leveraged a total of $408 million from private and federal sources. The residents living in these units pay about $267 less in rent each month than they would if they lived in apartments charging fair market rent, resulting in approximately $24 million in savings for these households. The increased purchasing power of these families supported 833 ongoing jobs throughout the economy — jobs whose holders pay income tax and spend more on local goods and services.15 In light of these outcomes, bank consortia like NOAH, which stimulate the available supply of affordable rental housing with capital loans, are an integral part of safeguarding the future well-being of American communities and building community capacity for sustainable, long-term growth.16
- Federal Reserve Bank of San Francisco, “Community Development, Creation of the Consortia,” accessed 14 January 2011. For more on LIHTC, see U.S. Department of Housing and Urban Development, Office of Policy Development and Research. July 2010. “LIHTCs Boost Affordable Rental Housing Supply,” ResearchWorks.
- The CRA required lending institutions to serve all segments of their communities, thus eliminating “redlining,” in which banks accepted deposits from low- and moderate-income populations but did not lend to them at a commensurate rate. Federal Financial Institutions Examination Council. April 2006. “CRA 101: An Introduction to the Community Reinvestment Act.”
- United States Department of the Treasury, Community Development Financial Institutions Fund.
- Letty Ann Shapiro, “Similarities, Differences Between CRA and Public Welfare Investment Authority,” Community Developments Investments, Fall 2010.
- Interview with Joel Epstein, division manager of community lending and investment at Wells Fargo, February 14, 2011.
- U.S. Department of the Treasury, Comptroller of the Currency. October 2010. “Multibank Partnerships for Community Development Financing,” Community Developments Fact Sheet.
- Federal Reserve Bank of San Francisco, Community Development Department. December 2004. “Community Development Assessment for the State of Oregon: A Guide to Oregon’s Community Development Environment.”
- Oregon state-level renter statistics from the National Low Income Housing Coalition. May 2010. “Out of Reach 2010: Renters in the Great Recession, the Crisis Continues.”
- U.S. Department of Housing and Urban Development, Multifamily Assistance and Section 8 Contracts Database, updated 20 December 2010.
- Oregon Housing and Community Services, “Manufactured Home Park Closures,” September 2010.
- Interview with Bill Van Vliet, NOAH’s executive director, January 14, 2011; internal documents provided by NOAH; NOAH’s website.
- Federal Reserve Bank of San Francisco, Community Development Department. 2006. “Financing Affordable Housing — Building Communities: The Story of Arch.”
- This housing complex opened in December 2007 in Portland, Oregon. According to the American Community Survey, Portland’s median household income was then $47,143. For senior households (65 years and over), the median income was $27,643.
- Oregon Housing and Community Services. 2008. “Housing as an Economic Stimulus: Exploring the Economic and Community Benefits of Affordable Housing Development,” 14–18.
- Molly Rogers and John Blatt. April 2003. “Economic Impact of Affordable Housing Development,” Association of Oregon Community Development Organizations.
- Interview with Van Vliet.
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