Effective Strategies
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Office of the Comptroller of the Currency Administrator of National Banks EFFECTIVE STRATEGIES for Community Development Finance he Office of the Comptroller of the Currency (OCC) was established in T 1863 as a bureau of the Department of the Treasury. The OCC is headed by the Comptroller, who is appointed by the President, with the advice and consent of the Senate, for a five-year term. The OCC charters, regulates, and supervises approximately 2,600 national banks and 66 federal branches and agencies of foreign banks in the United States, accounting for 58 percent of the nation’s banking assets. Its mission is to ensure a safe, sound, and competitive national banking system that supports the citizens, communities, and economy of the United States. TABLE OF CONTENTS Introduction This section summarizes the goals and objectives of the study. It describes how to use the report and the Community Development Resource Guide, which accompanies the report. Resource Guide.................................................................................. 2 Acknowledgments .............................................................................. 3 Strategies to Achieve Community Development Finance Objectives This part highlights common strategies used by the participating banks to achieve their overall community development finance objectives. ................................. 4 Effective Affordable Single-Family Mortgage Strategies The participating banks identify effective strategies for managing the affordable single-family lending process. ......................................................... 9 Effective Affordable Multifamily Finance Strategies The banks in the study share their effective strategies for financing affordable multifamily housing developments.................................................19 Effective Small Business Lending Strategies This segment provides several common practices used by the participating banks to deliver small business lending products effectively. ......................................32 Community Development Resource Guide (Companion Volume) The Community Development Resource Guide provides summaries of approximately 145 publications, videotapes, software applications, World Wide Web sites, and other information resources from more than 60 organizations. APPENDIXES A P P E N D I X E S Appendix A: Method ...................................................................................................... 45 This section provides information about the method used to conduct the study. Appendix B: Effective Community Development Finance Strategies Checklist............... 49 This appendix provides a checklist of the effective strategies used by banks to achieve their overall community development finance objectives and to manage their affordable single-family mortgage, affordable multifamily finance, and small business lending programs. Appendix C: Community Development Investments and Partnership Support .............. 51 This section provides information about the regulatory framework for banks to make a variety of community development investments and financing partnerships, the criteria banks consider when evaluating investment options, and consideration of community development investments under CRA regulations. Appendix D: Ways Community Organizations and Government Agencies Facilitate Banks’ Community Development Finance Programs....................................................... 57 This section describes the partnership opportunities that the community development organizations and government agencies provide to support banks’ community development finance programs. Appendix E: Partnership Resources for Affordable Mortgage Lending and Multifamily Finance ........................................................................................................ 64 This section describes affordable housing resources provided by the secondary market, federal government agencies, and community development intermediaries that help banks deliver affordable mortgages and finance affordable multifamily developments. Appendix F: Partnership Resources for Small Business Lending ..................................... 81 This section highlights government programs and other resources that help banks make small business loans. Appendix G: Government Contacts ................................................................................. 92 This section lists government and nongovernment organizations with their addresses, telephone numbers, and World Wide Web sites for quick reference. Appendix H: Participating Study Partners ...................................................................... 95 This appendix lists the nine community development organizations or intermediaries and nine national, state, and local government agencies that provided staff time and shared information as participants in the study. Appendix I: Bibliography and Background Reading ....................................................... 96 The bibliography and background material listed in this appendix are references and background reading used in addition to the interviews with participants in the study. I N T R O D U C T I O N ver the last two decades, many U.S. commercial banks have used community development finance techniques to help meet the O credit needs of their communities. To better understand successful strategies for community development finance, the OCC studied how selected national banks finance three community development activities: affordable single-family housing, affordable multifamily housing, and direct small business lending. This publication presents strategies that have helped those banks engage effectively in community development (CD) finance. While it does not report on the profitability of CD finance, the publication does describe the processes and programs those banks use to achieve their CD objectives, and provides practical information for other banks that want to undertake CD activities. For purposes of this study, we set out to determine the practices that contribute to the banks’ success in the three CD activities and how these practices fit into each bank’s CD delivery and performance assessment processes. We also explored the types of effective relationships between banks and their community partners that help finance local CD activities. We obtained information from national banks, community-based organizations, and government agencies through interviews and supplemental documents provided by the participants. The willingness of the organizations to share experiences and strategies that benefit low- and moderate-income families and small businesses is consistent with two primary lessons we learned from the study. First, banks that are successful in CD financing actively investigate their communities for CD opportunities appropriate for the markets and take a strategic approach to partnerships with CD organizations and government agencies. Second, banks learn as much as they can from the best in the business, replicate appropriate strategies in local markets, and go back to the drawing board to develop new approaches when previous methods do not work. GOALS AND OBJECTIVES This study has two principal objectives: (1) To highlight effective CD financing practices; and (2) To illustrate effective partnerships that finance CD activities. SCOPE AND DEFINITIONS A bank’s CD financing may include a broad range of lending, investment,1 and service activities permissible under federal banking law. This study focuses on three particular lending activities: • Affordable mortgage loans for owner-occupied, single-family residences; • Affordable multifamily rental housing financing; and • Direct lending to small businesses,2 especially to those companies needing special loan products or delivery mechanisms. 1 National banks are permitted to make investments in community-based organizations and CD intermediaries that primarily promote the public welfare, including the welfare of low-and moderate-income families or communities under the OCC’s regulation on community development corporation and project investments and other public welfare investments (12 CFR Part 24). 2 “Small businesses” are defined for purposes of this study to mean businesses that meet the qualifications of the Small Business Administration’s Development Company or the Small Business Investment Company Programs in 13 CFR Part 121.301 or that have annual revenues of $1 million or less. 1 The study uses an “effective practice,” approach rather than a formal, statistical analysis. OCC staff conducted site visits and asked the banks to respond to questions. Specifically, the study is based on the special steps or processes attributed to effective CD finance by a defined group of national banks. The OCC considered national banks of all asset sizes for the study. The banks that were selected shared certain characteristics with regard to successful CD programs, including the banks’ overall safety and soundness condition, their record of CRA performance under the Community Reinvestment Act (CRA), trade association press reports about their successful bank programs, and validating observations from OCC staff and CD intermediaries. All of the banks had assets of $250 million and greater. To ensure that the results would have broad geographic applicability, banking companies were selected from geographic areas across the country. (The study’s method is described in appendix A.) HOW TO USE THE REPORT The intent of this report is