2007 Community Development Policy Summit: Partnering for Success

June 21–22, 2007
Hosted by the Federal Reserve Bank of Cleveland
Cleveland Marriott Downtown • Cleveland, Ohio

Proceedings

These proceedings summarize the Federal Reserve Bank of Cleveland’s Fifth Annual Community Development Policy Summit, held June 21–22, 2007, at the Cleveland Marriott Downtown. They are organized as follows:

I. Opening Remarks

II. Panel Discussion: The View from City Hall

III. Concurrent Session #1
- The Impact of Nontraditional Mortgage Products
- Discovering Neighborhood Market Potential

IV. Concurrent Session #2
- Responding to Soaring Foreclosures
- Focusing on Existing Community Assets and Infrastructure

V. Fed Perspective: Financial Innovation Benefits and Challenges

VI. Panel Discussion: A Reflection on 30 Years of CRA

VII. Concurrent Session #3
- CRA in Rural Communities
- Exploring Newer Community Development Financing Sources
- Tackling Vacant and Abandoned Properties

VIII. Keynote Address: Clarence Page of the Chicago Tribune

Overview

The Cleveland Fed’s Fifth Annual Community Development Policy Summit provided a two-day forum for a group of 300 bankers, community development practitioners, elected and appointed officials, and academics to step back from their daily work and consider the policy landscape surrounding issues that affect communities today. The policy summit included panel presentations, breakout sessions and informal networking opportunities, all of which gave attendees the opportunity to examine key issues facing communities, among them foreclosures, vacant and abandoned properties, and finding new sources to fund community development. The opening plenary session focused on the Community Reinvestment Act, which was passed 30 years ago.

A pervading topic of discussion addressed partnerships among practitioners, bankers, community leaders, and funders, and how these alliances are increasingly being leveraged to address community development issues.

“Our aim with the policy summit is to bring together key players in community development—policymakers, bankers, academics, funders and, of course, practitioners—to examine critical issues in community development through a policy lens,” noted Ruth Clevenger, Community Affairs Officer for the Federal Reserve Bank of Cleveland and the policy summit’s key organizer. “So many communities, urban, rural, and suburban alike, are facing the same issues. We wanted to showcase some of the policies, practices and partnerships that have been most effective at helping communities address the issues.”

Capping this year’s conference was the keynote address by Clarence Page, a Pulitzer Prize-winning journalist with the Chicago Tribune. Mr. Page shared observations, anecdotes, and wisdom culled from three decades of work covering community and political issues, beginning with coverage of the early activism of Gail Cincotta on Chicago’s West Side and running through his years in Washington, DC, covering these issues from a national perspective.

I. Opening Remarks
June 21, 2007

Michael Rubinger, president and CEO of Local Initiatives Support Corporation, set the tone of the summit with a challenge: Create a more comprehensive approach to improving opportunities for residents of low- and moderate-income communities. He noted that his tenure in the field dates back to the 1970s, “when social disorganization was the norm. There was little that could be called community development. All that has changed.” Community development has evolved into a full-fledged industry, involving billions of dollars and touching urban, rural and suburban communities and helping effect safer streets, increases in homeownership, and a return of private markets into places where “it would have been unimaginable” before.

Despite these successes, there is still a long way to go. “How do we ensure that our efforts will lead to sustainable communities?” he asked, framing every conference discussion to come. Accelerating the pace of change will require additional capital. Building family assets is a critical objective, along with access to better schools. How can these objectives be accomplished? “Through comprehensive community development,” Rubinger noted, adding that it has rarely been achieved on the ground. A comprehensive approach to community development requires the participation of policymakers, funders, and practitioners alike. The first step is to identify the principal challenges, Rubinger noted, and then determine the strategies that will help communities move forward.

“We have to keep answering the ‘so what?’ question. Are we making meaningful change? Can we move the field of community development to a new height?” Rubinger said in closing. “I believe we can.”

II. Panel Discussion: The View From City Hall
June 21, 2007

The opening plenary session featured civic leaders from four cities in the Midwest: Toledo, Ohio; St. Paul, Minnesota; Kalamazoo, Michigan; and Dayton, Ohio. The discussion got underway with praise for Rep. Marcy Kaptur (D-13), whom Toledo Mayor Carleton Finkbeiner lauded for having done “a great job with community reinvestment. That kind of support from policymakers will continue to be invaluable.” St. Paul Mayor Chris Coleman remarked that if cities are going to be able to rebuild, states must help. “Partnerships and support will be critical,” he noted. Each leader cited predatory lending and foreclosure as severe problems facing their communities. Toledo’s Finkbeiner added grimly, “We’re going to be hamstrung by the foreclosure problem.” The broader aim of these leaders is to help rebuild their respective communities, each of which has seen population decline, job loss, and some increase in numbers of residents in poverty.

When asked what each leader would like to see on a policy agenda, the responses ranged from strong anti-predatory-lending laws to a need for a federal-level official who understands urban issues. Kalamazoo Mayor Hannah McKinney mentioned her desire to see youth poverty on the national agenda and tax-sharing strategies on the states’ agendas. Mayor Coleman wants No Child Left Behind fully funded. “And do something about the state of education,” he added. On Dayton City Commissioner Dean Lovelace’s wish list is an expansion of earned income tax credits (EITCs) and homebuying programs that help people have a better quality of life.

The leaders all agreed that collaboration and partnering with other organizations is essential to getting work done. “My model for really good collaboration is Indianapolis, which has a great track record of different entities working together,” noted Mayor McKinney, who said that they’ve begun similar efforts in Kalamazoo. “It takes time and effort to collaborate and create a new paradigm.”

Moderator Rubinger noted that competition among nonprofits “is as healthy as competition among for-profits.” He added that some of the discipline in the for-profit world should be brought to the nonprofit world.

Key Messages

The health of states is dependent on the health of their largest cities. Cities can benefit from collaboration with other communities, organizations, nonprofits, and for-profits. Job creation is essential to the ongoing vitality of cities. According to Mayor Coleman, businesses will site their facilities where there is an educated workforce. State, local, and federal leadership and funding are critical to success.

Moderator:
Michael Rubinger, President and CEO, Local Initiatives Support Corporation

Speakers:
The Honorable Chris Coleman, Mayor, City of St. Paul (MN)

The Honorable Carleton Finkbeiner, Mayor, City of Toledo (OH)

The Honorable Dean Lovelace, Commissioner, City of Dayton (OH)

The Honorable Hannah McKinney, Mayor, City of Kalamazoo (MI)

III. Concurrent Session #1
Breakout Session 1A: The Impact of Nontraditional Mortgage Products
June 21, 2007

Leslie Parrish opened the session by sharing findings from a study published recently by the Center for Responsible Lending, which found that foreclosure risk is highly dependent on loan type, including purchase versus refinance and fixed versus adjustable rate, and on loan terms, including prepayment penalties. Ms. Parrish also indicated that many of the problems in the subprime industry have been masked by a stronger housing market in which borrowers had more options as well as by strong price-appreciation. With the decline in home appreciation for certain markets, foreclosures associated with subprime loans have been increasing.

Economist Morgan Rose focused his remarks on an examination of the relationship between predatory lending and the probability of foreclosure in the Chicago market. He noted that data show a combination of predatory features on mortgage loans is driving the increase in foreclosures, versus a single feature by itself being directly responsible for any increased foreclosure activity. Dr. Rose cautioned against a national restriction on specific loan features. In his opinion, oversight would be best accomplished by states and municipalities.

James Bulger then shared his observation that “there is no such thing as a predatory loan, just predatory lending.” Mr. Bulger feels oversight needs to be concentrated on prosecuting offending originators in civil and municipal courts. Mr. Bulger also called for national licensing or a database of loan officers, whether the officers work for a bank or a mortgage brokerage.

During the Q&A session, one attendee voiced a question on everyone’s mind: What is the best way to minimize incentives for brokers to close loans merely for profit and without regard to the borrower’s capacity to repay without also restricting loan features that may be beneficial to borrowers, particularly those in low- and moderate-income communities? Ms. Parrish said making subprime lenders take responsibility for their brokers will help, while Mr. Bulger reiterated his earlier position that licensing and registering loan originators would help with the problems in the industry.

This discussion led to questions about regulating the mortgage lending industry. Dr. Rose feels the smallest unit of government possible should be given oversight power. Mr. Bulger suggested imposing harsh penalties for originators who defraud borrowers, but he noted that mortgage brokers have resisted suitability and fiduciary responsibility standards up to now because “they have not been presented with a clear definition of either. If a suitable definition is given then [responsibility standards] would be something they would consider.”

Moderator Kathleen Engel agreed, saying, “Suitability is a vague standard.” Lenders are worried about liability, she argued. “We need an agency such as the FTC to clearly define what is suitable.”

Another question raised the issue of loan modifications. Why have more lenders not moved to modify or restructure the terms of loans that clearly are in trouble? According to Ms. Engel and Ms. Parrish, the answer lies with the incentive structure for loan servicers. “It is more expensive in some instances [to modify a loan] and reflects poorly in servicer metrics to investors,” noted Ms. Parrish. Servicers have greater incentive to foreclose rather than modify because it has the potential to make their performance look better.

Key Messages

While many agree that additional regulation of the mortgage industry might help address some of the issues the industry is facing, no one is sure of the best way to do this. “Suitability” and “fiduciary responsibility” standards should be defined with greater clarity. A deeper understanding is needed of the relationships between loan types and loan terms to foreclosure. Policymakers considering any regulation of the industry, whether in the form of a national licensing registry of all lenders or greater restrictions on subprime features, must consider the possible adverse consequences of restricting access to credit among LMI borrowers.

Moderator:
Kathleen Engel, Cleveland State University

Speakers:
James Bulger, Pennsylvania Association of Mortgage Brokers

Leslie Parrish, Center for Responsible Lending| PDF

Morgan Rose, Office of the Comptroller of the Currency | PDF

Breakout Session 1B: Discovering Neighborhood Market Potential
June 21, 2007

Moderator Chris Walker opened this session by explaining a phrase economists are using a lot these days: “Asymmetric information,” he stated, “is where one party in a transaction knows more than the other party—to the disadvantage of the less-informed party.” Mr. Walker pointed out that what retailers and other investors know about some communities’ potential is incomplete or wrong, because their knowledge is based on incomplete or wrong information. “Census tracking misses millions of people,” he noted, “representing billions of dollars of unrecognized income.”

Mr. Walker’s solution is straightforward: Get more and better data into the hands of policymakers and investors looking for specific opportunities within communities. “We’re not trying to sell data,” he said. “We’re trying to get the data that reveal a better view of [a community’s] economic viability.”

John Talmage’s comments addressed the relationship between public policy and private-sector opportunity. “Data can show market anomalies, too, making it a possible road map for investments,” he observed. In Miami, Florida, for instance, more than 80 percent of residents pay their bills in cash, which means that records tracking credit card and check payments will yield a highly distorted look at spending. In Santa Ana, California, and in Detroit, Michigan, initial data that Social Compact examined for those areas indicated bleak economic investment prospects; however, other indicators showed significant, meaningful opportunity for public and private investment, such as a grocery store.

Tom Kingsley pointed out that community development is one of the least-well-reported fields, with census data available once every 10 years. The challenge becomes using what data are available to inform and influence urban change. He lauded Case Western Reserve University’s NEO CANDO as the best data system nationwide, compiling data from many sources, both at the neighborhood and, in some cases, parcel level. “It’s easier, quicker, and less costly to integrate information now,” he said.

Another good integrative data system is NNIP (National Neighborhood Indicators Partnership). “Data is an enormously important and valuable community resource,” Mr. Kingsley said, adding that it brings credibility to all sorts of actions. He cited a group of citizens who used publicly available data to create a map showing where crimes were occurring in their neighborhood and overlaid it on a map showing vacant and abandoned properties. The citizens’ map was published in the paper and got the attention of local legislators, who then proposed a change.

Key Messages

Census undercounts account for significant underpayment of federal funds. Data can tell us about hidden neighborhood potential. Better information can help all investors tailor their decisions and actions.

Moderator:
Christopher Walker, LISC/MetroEdge

Speakers:
Thomas Kingsley, Urban Institute and National Neighborhood Indicators Partnership | PDF

John Talmadge, Social Compact | PDF

IV. Concurrent Session #2
Breakout Session 2A: Responding to Soaring Foreclosures
June 21, 2007

“Welcome to the epicenter of the foreclosure universe” was the opening statement of Jim Rokakis, Cuyahoga County treasurer and a panelist of this breakout session. Clearly, he said, anyone who picks up a newspaper can read a ton of articles about the problem—and how it’s worst of all in Cleveland, Ohio. Mr. Rokakis then reeled off a string of statistics on foreclosures in Cleveland neighborhoods that underscored his opening comment. “I’d much prefer redlining to this,” he added grimly.

Mr. Rokakis outlined several county programs now in place to help address impending foreclosure, including workout programs and Cuyahoga County 211. For every foreclosure averted, however, 20 more have been filed. He doesn’t see the rate of foreclosure filings slowing anytime soon, either, with tens of thousands of ARMs readjusting their rates in the coming months and companies like Argent Loans selling thousands of mortgages for properties that are way overappraised. “There’s been a lot of fraud taking place in our state.”

The State of Ohio’s Cindy Flaherty spoke next on how the way we talk about foreclosures has changed. “We used to focus on predatory loans,” she said. “Now we hear [about] a much broader range of issues, including subprime lending and exotic mortgage products.” One reason Ohio is leading the nation in foreclosures, she feels, is that our home-price appreciation has lagged. Ms. Flaherty also cited data that show a high percentage of foreclosures attributable to subprime loans.

But “the time has come to move beyond talking about root causes of foreclosure and moving forward toward solutions,” she stated. “Short term, we’re looking to rescue homeowners in distress. Long-term, we need to consider options to avoid this happening again.” To that end, she noted that the five committees of Ohio’s foreclosure task force include:

• Outreach and education, which aims its efforts at reaching homeowners on loan workout solutions
• Responsible lending options, aimed at prompting action by servicers and lenders
• Legislative, which is considering two or more bills
• Legal, aimed at examining how rules might be changed to help prevent foreclosures
• Housing options, which looks at how communities are responding to the crisis

Bonnie Boards then spoke of the Chase Homeownership Preservation Office, which directs its efforts at helping counseling agencies with programs to assist homeowners facing the possible loss of their homes. Ms. Boards was followed on the panel by Steven O’Connor, who pointed out that many subprime ARM loans are going delinquent before the reset. His comments suggested that the foreclosure issue is not as dire as Mr. Rokakis and Ms. Flaherty suggest.

During the sometimes-heated Q&A part of the session, one attendee asserted that using macroeconomics to explain foreclosure—as Mr. O’Connor did in citing job loss as a cause of foreclosure—is risky because looking at data from different years will yield varying pictures of the problem. Mr. O’Connor reiterated his position that macroeconomics does indeed play a part: “Ohio’s rate of foreclosure in prime loans is three times the national rate,” he said. “We think that’s due to job losses.” He added that responsible lenders have to look more closely at a borrower’s ability to repay. Another attendee challenged the Mortgage Bankers Association to take a more active, aggressive role in policing its own brokers and lenders.

The session concluded with a bit of levity: “We’ve heard a lot of potential solutions to foreclosure,” noted session moderator Paul Poston, “ranging from borrower education to expanding the county jail.”

Key Messages

Foreclosure activity is soaring in communities across the country, with Ohio posting some of the highest foreclosure rates in the nation. Many contributors to foreclosure have been pointed to—including fraudulent lending, insufficient borrower knowledge, inflated appraisals, loan servicers unwilling to work with struggling borrowers, and job loss—though scant data exists to support any as direct causes of foreclosure. Policymakers must consider both short-term and long-term strategies to help communities and states combat this problem.

Moderator:
Paul Poston, NeighborWorks America

Speakers:
Bonnie Boards, Homeownership Preservation Office, JP Morgan Chase

Steven O’Connor, Mortgage Bankers Association

Jim Rokakis, Cuyahoga County (Ohio)

Cindy Flaherty, Ohio Housing Finance Agency

Breakout Session 2B: Focusing on Existing Community
Assets and Infrastructure
June 21, 2007

This session focused on how the governors of two states—Ohio and Pennsylvania—are building agendas that refuel state economic engines through revitalization of existing cities, suburban communities, and towns. This approach, known as “Fix It First,” seeks to prioritize funds that rebuild community assets and infrastructure.

Kimberly Gibson began by presenting Ohio Governor Ted Strickland’s vision to turn the state around with a “Fix it First” agenda. The state plans to rebuild existing urban and rural areas throughout Ohio while discouraging subsidies that promote urban sprawl by focusing development and investments primarily on cities’ existing infrastructures. She acknowledged that although government bureaucracy can slow things down, Strickland’s administration is committed to making silos as transparent as possible in order to get business done. How? Through better coordination of efforts among the state’s departments of transportation, economic development, infrastructure, and community development. “The new administration wants to be a partner, not an obstacle, in moving projects forward,” she noted. The state will focus on its strengths in the regional economies, continue to foster innovation, and invest in advanced energy resources. Tops on the list of critical issues are K–12 urban education and reengineering workforce development to focus not only on high-growth industries but also on addressing the spatial mismatch between jobs and residents. “We must defragment our communities,” she said in closing. “Communities must work together to make a stronger Ohio.”

Next, Bryce Maretzki shared the Governor of Pennsylvania’s vision to encourage community revitalization across the state. Their version of the “Fix it First” initiative is aimed at reclaiming and reusing Pennsylvania’s brownfields, growing urban and rural economies, investing in education, coordinating investments across state agencies, and better managing the state’s workforce development programs. Per Mr. Maretzki, this represents a coordinated effort across multiple state agencies that involved integration of transportation, land use and economic development areas, the institution of an economic development cabinet, and establishment of two action teams. Of these, Mr. Maretzki spoke mainly of the Community Action Team (CAT), which works very closely with communities throughout the Commonwealth to coordinate funding for projects across the various state agencies; build consensus, cooperation, and support for economic development projects; and assist in the implementation of these projects. “There has been significant public and private investment for these projects,” he noted. Mr. Maretzki concluded with a list of the state’s key budget issues for 2007: significant investment in education; health care for all Pennsylvanians; investment in alternative energy sources, such as wind, solar, and biofuels; and significant investment in repairing and retaining mass transit, highways, and bridges.

During the Q&A session, moderator Julia Seward asked both presenters what approach they recommend for community reinvestment. “Community developers need to be pushed forward,” Mr. Maretzki stated. “Competition is not a bad thing—we need to foster healthy competition.” He added, “It’s critical to think beyond geographic boundaries. You need to let people know your vision and build on your strengths and target resources to those strengths.”

According to Ms. Gibson, community developers should focus on aging places. “We need to redevelop—save these places—before disinvestment occurs. There are many assets in our aging places that we must capitalize on.” One instance of existing assets is northeast Ohio’s strong educational institutions and medical facilities. “Ohio’s policy will no longer provide infrastructure supports for development in the exurbs,” she noted. “The focus is on investment in our core communities.”

Key Messages

Community revitalization today is far broader than addressing housing issues; it requires a comprehensive approach that also includes education, transportation, workforce, and other issues vital to vibrant places with strong social and economic fabric. The greatest assets provided by community developers to the state policymakers are their knowledge of communities and stories that illustrate local challenges and opportunities. Ms. Gibson called on-the-ground information a valuable “reality check” for legislators. Ohio and Pennsylvania are two of a growing number of states focusing resources on improving existing community assets, an approach called “Fix It First.”

Moderator:
Julia Seward, Director of State Policy, Local Initiatives Support Corporation

Speakers:
Kimberly Gibson, Ohio Department of Development

Bryce Maretzki, Dept. of Community and Economic Development, Commonwealth of Pennsylvania | PDF

V. Fed Perspective: Financial Innovation Benefits and Challenges
June 22, 2007

Federal Reserve Bank of Cleveland President and CEO Sandra Pianalto addressed policy summit attendees at the midpoint of the conference. By this time attendees had had an opportunity to explore and discuss a number of key issues facing cities and communities, among them foreclosures, land use, and limited resources. President Pianalto broadened the focus to talk about financial innovation and its impact on individuals, the financial services industry, and the economy in general. An excerpt from her remarks (read the speech in its entirety) follows:

With the benefit of legislation like the Community Reinvestment Act, which we will hear more about this morning, access to credit and capital has gradually improved. Now, people at all ends of the financial spectrum have more opportunity to become homeowners than they did 30 years ago. In the past few years, the U.S. homeownership rate has reached its highest level in history—nearly 70 percent.

But clearly, not all of the news is positive. Much of yesterday's agenda focused on home foreclosures—a topic that has been getting quite of bit of attention lately, and I think deservedly so. From our communities to Congress, there is considerable concern about how the increasing numbers of home foreclosures are affecting borrowers and neighborhoods. Unfortunately, this problem hits very close to home. In the fourth quarter of 2006, Ohio had the highest foreclosure rate of any state in the nation. We know that Cuyahoga County itself has been particularly hard hit. It is unfortunate that at a time when many people are rediscovering the hidden potential of our urban neighborhoods, the current trend in foreclosures might compromise some of the real progress that has been made.

At the Federal Reserve Bank of Cleveland, we care about this problem. Some of you here this morning have participated in meetings we have held over the past few years with community leaders, bankers, academics, regulators, and other policymakers. Our discussions have reinforced the idea that the housing market is very complex, with many participants and many competing interests.

And that leads me to my message this morning: Within this increasingly complex mortgage market, policymakers must preserve the benefits of financial innovation while protecting consumers from unfair and abusive practices. (Read entire speech)

VI. Panel Discussion #2: A Reflection on 30 Years of CRA
June 22, 2007

As the Community Reinvestment Act passed the 30-year mark in 2007, policymakers, practitioners, and academics continued to raise the inevitable questions about this landmark legislation’s efficacy—has it been successful? to what degree? what areas is it most relevant for? and so on—as well as about its future. As moderator Raphael Bostic said in opening this panel discussion, “This is where pie-in-the-sky idealism meets on-the-ground feasibility. What has worked and what hasn’t? What will this legislation look like five, 10, or 30 years in the future?”

Panelist Glenn Canner weighed in with research on the impact of CRA. Pre-CRA, the world had three kinds of credit: prime, FHA, and installment sales contracts. CRA, he explained, was intended to change the incentive structure for the banks. Later, HMDA legislation helped shed light on lending patterns and created additional pressure on lending institutions to provide credit. “Finally, and maybe because of CRA, lenders learned that those loans could be done safely,” he noted. This led to an explosion of products in the marketplace—“the democratization of credit.” Dr. Canner cited several studies, among them one that revealed that CRA lending is profitable for banks and one that found that census tracts just within the margin of CRA emphasis had better outcomes, such as higher rates of homeownership, than census tracts just beyond this threshold. Dr. Canner noted that today, a large share of lending is not covered by CRA. He questioned whether current CRA assessment areas are still the best metric and lauded the CRA service test, which encourages savings and deposit services among communities, versus their having to rely on payday lenders for these services.

Mark Willis, an urban economist and head of JP Morgan Chase's Community Development Group, addressed the audience next, stressing the need to ensure continued flexibility across place. HMDA and access to data revolutionized the mortgage market, and for the better, he said. In order for CRA to be sustainable in the bank, it has to make good business sense. Solutions work best when they are flexible; legislation, he added, is not flexible. He acknowledged that CRA has succeeded in its focused approach, even prior to the 1996 changes. As to the legislation’s future, Mr. Willis urged caution against expanding the legislation too far or “twisting it so everyone is covered.” We need a level playing field in the mortgage market, he added, but we don’t need CRA to do that.

Malcolm Bush then took the microphone, touting CRA’s “undeniable successes.” Among them, he noted that

• CRA is one of the few federal laws that has had a demonstrated national impact on low- and moderate-income communities, and
• The legislation has had an impact on catalytic neighborhood development.

   

  Challenges remain. Mr. Bush noted that lending activity level was higher when there was community activity pushing for it; “that’s a concern for communities that don’t have strong CDCs,” he remarked. He cited predatory lending as another challenge facing communities, with approximately half of mortgage lending being done by institutions other than banks or their affiliates. He called the CRA service test “piecemeal reform” that won’t accomplish what CRA aims to do. “Community reinvestment is too important to get wrong,” Bush said in closing.

Closing comments from panelists included this one from Dr. Canner: “You need educated consumers. It would be great to have a marketplace where buyer brokers go out and find a homeowner the best deal.” Until then, we can follow Dr. Canner’s suggestion regarding this issue: “Let’s continue the conversation.”

Key Messages

CRA was intended to change the incentive structure for banks to broaden their lending. Today, 60 percent or more of mortgage loans are made by brokers, who are not covered by CRA. Their very different incentive structure, commented Dr. Canner, means that these brokers have an incentive to get a high price. In order to be sustainable in the banks, CRA has to make good business sense.

Moderator:
Raphael Bostic, University of Southern California, School of Policy, Planning & Development

Speakers:
Malcolm Bush, Woodstock Institute

Glenn Canner, Board of Governors of the Federal Reserve System | PDF

Mark Willis, JP Morgan Chase

VII. Concurrent Session #3
Breakout Session 3A: CRA in Rural Communities
June 22, 2007

Rebecca Seib opened the session by pointing out that the Community Reinvestment Act doesn’t work if banks do not partner with community-based organizations to buffer risk. “Banks cannot comply with CRA without community-based organizations that bring together public and private funds for a deal,” she stated. She also noted that CRA is prompting banks to get into areas they would not have entered previously.

According to Greg Bischak, the Appalachian Regional Commission (ARC) contracted with the National Community reinvestment Coalition to conduct a study released in April 2007, to examine access to credit and capital in the Appalachian Region. ARC found that although Appalachia is doing better overall in terms of small business loans now than in 1996, there are differences in the concentration of lending between states, metro and non-metro areas, and in the size of businesses utilizing small business capital. For instance, only 28 percent of businesses with less than $1 million in revenues received loans. Also, only 32 percent of businesses in distressed counties received loans compared to 42 percent in nondistressed counties. Mr. Bischak noted that relationship lending was very important and banks with higher CRA ratings were doing more community development lending.

Randall Hunt briefly discussed the USDA’s mission, structure and program areas before focusing on CRA in rural communities. In preparation for his participation at the policy summit, Mr. Hunt spoke to several financial institutions about CRA in rural communities. He noted that many originators view CRA as an additional tool and an added incentive when originating loans; however, lenders do not yet view CRA as a driver to originating loans in certain areas. Overall, Mr. Hunt indicated that many community groups were utilizing USDA products and guarantees as well as structuring tax credits within deals.

Hubert Van Tol opened his remarks by observing that the relationships between CRA- covered institutions and community organizations are both important and difficult. There are many challenges to keeping CRA relevant, he said, including the rules governing assessment areas in rural communities. For example, it is an institution’s deposit-taking branches rather than its product market share that are the basis for establishing assessment areas. “These challenges affect the way institutions conduct business,” he said, “as well as their commitment to lend within rural communities.” Mr. Van Tol indicated that micro and small business loans were absent from—and especially needed in—rural areas.

In responding to a question about the impact of mergers and acquisitions on the availability of credit and capital in rural markets, Mr. Van Tol said he feels such bank mergers pose a significant and particular concern to rural communities. “Many community banks no longer exist as a result of merger activity,” he stated. “Also, many of the bank’s staff that had relationships with local CDC members are no longer employed with the new institution. As a result, much of the relationship lending is gone.”

Added Ms. Seib, “With fewer institutions and many with cookie-cutter loan programs designed for serving multiple geographies, much of the loan product diversity has decreased.”

One session attendee posed the following question: “We have a HMDA reporting requirement, but no low- and moderate-income tracts within our assessment area. Will the distressed and underserved rural CRA changes be effective in meeting community needs?”

Mr. Van Tol said he thinks the new designation is a positive step, but also that changes in rural assessment area rules are needed.

Key Messages

CRA is viewed as an added incentive—not reason enough—to originate loans in a specific area. Community-based organizations play a critical role in helping banks bringing together public and private funds for deals involving banks that serve rural communities. Micro and small business loans are absent from—and especially needed in—rural areas.

Moderator:
Rebecca Seib, NeighborWorks America | PDF

Speakers:
Greg Bischak, Appalachian Regional Commission | PDF

Randall Hunt, United States Department of Agriculture | PDF

Hubert Van Tol, Rural Opportunities, Inc.

Breakout Session 3B: Exploring Newer Community
Development Financing Sources
June 22, 2007

Moderator Kirsten Moy launched this session with a clear message: There are other sources of community development financing besides traditional lenders. Banks, she pointed out, hold approximately 20 percent of our country’s assets; they are not the only place to look for community development dollars. One growing source of alternative financing for community development is mutual funds whose mission includes socially responsible investing.

Lisa Hall addressed the audience about her organization’s program. “My message is about bringing the individual to community development,” she stated. The Calvert Foundation is a CDFI that lends domestically and internationally to microfinance institutions, social enterprises, community loan funds, and affordable housing groups; it raises funds via Calvert Community Investment Notes, which can be purchased through brokers. “It’s an available debt instrument,” Ms. Hall explained. “We’re a lender, not a grant-maker.” Calvert Foundation investors are interested in social investment as well as financial return. “We’re allowing individual investors to have a role in community development,” she stated.

To date the Calvert Foundation has raised $120 million via some 2,500 investors. And these are not all high-net-worth investors with money to spare: Ms. Hall pointed out that 74 percent of Calvert investors have average annual incomes under $100,000 and an average account balance at Calvert of $6,000. “Over time we’ve been able to reach scale,” she said. “It’s a great way to bring individuals’ contributions to community development.” Ms. Hall concluded her comments with an encouragement to banks to partner with organizations like Calvert to acquire a blend of funding to accomplish community development goals.

Leonard English, head of the Positive Social Purpose Investment Program of the United Methodist General Board of Pension [link to www.gbophb.org], pointed out that the community development landscape, at $3 billion to $4 billion, is significant—“but there is more room for other players.” Future opportunities where his organization is looking to make investments include

- affordable housing preservation
- workforce housing
- new markets tax credits

“Scale transactions work more efficiently,” Mr. English noted, adding that the best way to access the General Board’s capital is to work through its financial intermediaries. “Organizations such as the Community Development Trust, the Community Reinvestment Fund, and the Low Income Investment Fund are mission driven to assist community development—and, just as important, they provide the credit enhancements that allow us to continually deploy money in this space.”

Next up was Frank Altman of Community Reinvestment Fund USA, whose mission, he told attendees, is “to transform the community development finance system by accessing capital markets on behalf of local development lenders to enable them to increase their impact on the lives of people and their communities.” Transforming the system also involves achieving scale, perhaps by aggregating local activity into pools. Mr. Altman foresees billions of dollars trading back and forth in the community development market. The challenge, he said, is leveraging charitable contributions and socially responsible investments to bolster community development. “Getting to scale is a very big challenge to us,” he added.

Questions from attendees touched on returns on investment and bank charters. Several asked about practical applications for practitioners. “There’s quite a separation between knowledge and know-how,” began one. “Give us an example of how a CDC can begin in a small market to position itself to take advantage of these opportunities. What are next steps for on-the-ground practitioners?” The unanimous response from all attendees was, Contact us! Each presenter gave a website (see below) for his or her organization. Noted Ms. Hall of the Calvert Foundation, “Our website has profiles of companies we invest in.” Altman added that his organization has workshops for groups at the local level. English pointed out that NeighborWorks does training for organizations looking to get things started.

Key Messages

Banks are not the only place to look for dollars for community development. The community development finance landscape, at $3 billion to $4 billion, is significant, but there is room for other players. Socially responsible funds allow the individual investor to have a role in community development. Banks are partnering with organizations that do socially responsible lending in order to provide a blend of funding that accomplishes community development goals. The new markets tax credit is the biggest new thing in community development financing, helping funders partner with smaller organizations to put dollars on the ground.

Moderator:
Kirsten Moy, Aspen Institute

Speakers:
Frank Altman, Community Reinvestment Fund USA | PDF

Leonard English, United Methodist General Board of Pension and Health Benefits| PDF

Lisa Hall, The Calvert Foundation

See also:
www.gbophb.org—General Board of Pension and Health Benefits of the United Methodist Church
www.calvertfoundation.org—The Calvert Foundation
www.aspeninstitute.org—Aspen Institute
www.crfusa.com—Community Reinvestment Fund USA
www.nwa.org—NeighborWorks America

 

Breakout Session 3C: Tackling Vacant and Abandoned Properties
June 22, 2007

Alan Mallach began the session with his presentation “Confronting the Challenge of Vacant and Abandoned Properties,” wherein he discussed the effects these properties have on families and properties located nearby. “Vacant and abandoned properties are not a victimless crime,” he said, calling them magnets for criminal activity, fire hazards, and health and safety nuisances. They also devalue entire neighborhoods. “The costs that vacant and abandoned properties impose on our cities are mind-boggling,” he said. While economic and physical conditions are drivers of abandonment, public action—or inaction—also plays a major role. According to Mr. Mallach, “Government must be aggressively involved in addressing this issue.” Strategies that have been employed successfully by governments to address the issue of vacant and abandoned properties include a vacant property registration, nuisance abatement, and targeted code enforcement and demolition.

Next up was Frank Ford, whose presentation “Strengthening Neighborhood Markets through Vacant Property Prevention, Reclamation and Strategic Land Assembly” [link to Mr. Ford’s paper of this name] highlighted some work he and others are doing in six Cleveland neighborhoods to reverse market decline in these areas. The Strategic Investment Initiative, as it is called, involves identifying vacant and abandoned properties and acquiring them for redevelopment or demolition. To date some 500 vacant properties have been identified by this initiative for acquisition; 99 percent are residential and of those, 95 percent are single-family properties. Examination of court, auditor, and treasurer records of these properties revealed some telling features. First, the majority of these vacant properties resulted from foreclosures, and second, the owners of these foreclosed properties fit into one of the following categories: an investor who allowed property to deteriorate to the point of being unlivable and then defaulted on the loan; a victim of predatory lending and/or flipping schemes; or a fraudulent flipper who, together with or as a buyer, seller, mortgage broker, and appraiser, is knowingly involved in a property transaction with foreclosure being the intended outcome.

In Mr. Ford’s view, a lack of code enforcement and point-of-sale inspections, coupled with lax underwriting, fuels the foreclosure scenarios noted above. He concluded his remarks with a compelling visual: While the CDC system helps inject homeowner equity through the front doors of neighborhoods, predatory and abusive lenders, brokers, and appraisers suck that equity out the back doors at a rate six to eight times faster.

Andy Fraizer shared some of the challenges and successes of Indianapolis’ “war” on abandoned houses, a strategic approach city leaders devised to attack this problem (see “Tackling Abandoned Properties in Indianapolis” presentation). Short-term goals included identifying problem property owners, expanding the use of expedited tax sales, and determining the number of vacant and abandoned properties in the city. A working group of community leaders authored two reports articulating the longer-term goals of reclaiming abandoned property. These goals include:

• highlighting effective but underutilized tools to address vacant properties;
• identifying and recommending additional tools that could be useful;
• finding long-term funding sources to provide incentives for businesses and individuals to renovate abandoned properties; and
• targeting neighborhoods for transformative revitalization.

With support from the National Vacant Properties Campaign, state laws, local ordinances, and research of the working group were reviewed and statutory changes to three laws were recommended.

According to Mr. Fraizer the proposed state law changes were directed at three things: spurring negligent property owners to take responsibility; expediting the time that abandoned sites sit idle before being put back into productive use; and increasing options for governments to land-bank and dispose of troubled properties. SB 141, the culmination of more than three years of work, was passed, with most of the recommended legislative changes enacted and taking effect in early 2007. The details of the new laws are discussed in a technical guide for policymakers and practitioners published in September 2006. “Implementation of the new law in Indianapolis is a strategy for comprehensive neighborhood revitalization,” Mr. Fraizer added.

Mr. Mallach concluded with an insistent challenge to find “a comprehensive approach to address this problem.” Partnerships must be developed to combat vacant and abandoned property, he stated; no entity can address the problem solo. This problem did not happen overnight and will take a long-term effort to combat it.

Key Messages

While reclamation and redevelopment of vacant properties is critical, it is doubtful a community can build its way out of this problem. The community development system in Cleveland, for instance, can produce 700 units per year—but foreclosures cause the loss of 4,000–5,000 units per year in Cleveland. The absence of code enforcement and point-of-sale inspections, coupled with lax underwriting, can fuel foreclosure scenarios. Abandoned property revitalization strategies should be connected to comprehensive community development efforts. To tackle the challenge of abandoned properties in neighborhoods, a city must focus both on the real estate and the people living there.

Moderator:
Lavea Brachman, Greater Ohio

Speakers:
Frank Ford, Neighborhood Progress, Inc. | PDF

Andy Fraizer, Department of Community Development, City of Indianapolis | PDF

Alan Mallach, National Housing Institute | PDF

See also:
Abandoned housing reports, City of Indianapolis

VIII. Keynote Address—The Value of Civic Engagement,
From the Ground Up
Clarence Page, Chicago Tribune (Washington, DC)
June 22, 2007

Clarence Page closed out the 2007 policy summit with a speech that was equal parts encouragement, inspiration and entertainment. Page reminded the practitioners, bankers, funders and policymakers in the audience that, despite the critical challenges facing many of America’s older cities, there is absolutely reason to feel hopeful. A native Ohioan, Mr. Page acknowledged that Ohio’s cities are in a slump. “Economics is a changing environment, like the changing weather,” he said. “Those cities are down but not out. What separates the movers and the shakers from those who get moved and shaken? Education, access to information, and the ability to use both.” The boarded-up homes we see in our cities today are little different from the boarded-up homes of the 1960s, he said. Mr. Page came of age “when there were affirmative-action programs called urban riots.” He learned a lot from Gail Cincotta, whose activism he covered as a young reporter working in Chicago. Coalition building helped turn confrontation into collaboration and cooperation as the 1970s ran into the 80s, and Chicago turned things around with the right kind of partnerships. “This is the story of America,” he stressed, “with dips and valleys.”

The four legs of coalition building include business, government, foundations, and grass-roots organizations. “The best resources are people,” he added. “Pull them together around common interests and onto common ground.”

Moving forward, Mr. Page sees a need for reforms of subprime lending. He suggested that regulator changes are more flexible than laws. “But do no harm,” he cautioned. “Reforms must maintain access to credit and capital for those who need it.”

He also urged community leaders to seek regional solutions. The cities and suburbs around Chicago don’t live without each other, Mr. Page pointed out, they live through each other, exemplifying an observation of Whitney Young’s: “We may have come over on different ships, but we’re in the same boat now.” He then shared a range of ideas and quotes from Woody Allen, Robert Frost, Martin Luther King Jr. and others. Calling hope a critical asset, Page congratulated us all on being part of what he called the Great American Fall and Revival. Paraphrasing a line from Dr. King’s 1967 speech “Where do we go from here?” Mr. Page ended with this exhortation: Let’s all go out with a sense of dissatisfaction, so that we remain inspired to continue confronting the challenges in our cities and in our communities.

Key Messages

What separates the movers and shakers from those being moved and shaken are education, access to information, and the ability to use both. Coalition building can help turn confrontation into collaboration and cooperation Coalition building includes business, government, foundations, and grass-roots organizations. The best resources of any city or community are its people. Subprime lending needs careful reforming that ends the abuse without closing off credit. Regional solutions are effective ways to address many issues facing cities today.

 

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