October 12, 2015 marked the 38th anniversary of the Community Reinvestment Act (CRA). Happily, this groundbreaking legislation has had a huge positive effect on low- and moderate income (LMI) housing in the U.S. Over the last 20 years alone, CRA-covered banks like Bank of America have made nearly $800 billion in community development loans and investments benefiting LMI communities nationwide.
The effectiveness of CRA, and the banking industry’s vigorous compliance to it, helps create and maintain a vibrant, robust financing pipeline for affordable housing projects everywhere. Various Internet sources such as Wikipedia state that since 1987, over 2.4 million housing units, encompassing some 32 thousand projects, have been created across our country. Currently, approximately 125 thousand affordable housing units are created each year for low- and moderate-income families. And yet, there is an unmet demand of more than 5 million units. Much of this production can be directly or indirectly attributed to the existence of CRA.
HOW DOES THE CRA IMPACT DEAL-MAKING ACROSS THE COUNTRY?
Bank of America is committed to help rebuild and revitalize the communities we serve through a variety of means, among them community development loans and (typically LIHTC) investments. This ongoing commitment, especially to the LMI neighborhoods we serve, means we are eager to partner with a developer looking to do a new construction or renovation deal. Financial institutions often have specific CRA needs in various locations, so the appetite for a given deal in a given area may depend on which FI has “CRA need” in that market. Usually, high-density, urban locations coincide with areas of high CRA need across the landscape of financial institutions. Thus lending, investment and therefore development, are reinforced in those markets.
HOW SHOULD AN AFFORDABLE HOUSING DEVELOPER VIEW YOUR CRA OBLIGATIONS?
We work with many developers on upcoming new construction and rehab projects that will help the LMI customers we serve. In some situations, we may already have deals in place that address a particular community’s development goals with respect to CRA. Other times, we may be very motivated to do a deal that supports an immediate housing objective. At any given time, our needs under CRA can vary considerably from market to market — but this can change, so it is imperative for developers to maintain contact with their sources of debt and equity.
HOW DOES BANK OF AMERICA SUPPORT THE LMI HOUSING MARKETPLACE?
Helping support the LMI community with new multifamily housing is important to Bank of America. We have a full suite of products, services and strategic partnerships that allow us to provide construction debt, provide perm debt, make LIHTC investments, act as development partner, provide FHA financing, etc. …all in support of our clients in the affordable housing industry. We are also experienced with the RAD program (Rental Assistance Demonstration). Our West Region recently closed a large transaction in the City of San Francisco, and we are focused on identifying more RAD transactions across our national footprint.
We work hard to support the LMI community and the housing developers that serve it. But the reasons for that go far beyond CRA compliance. It’s just the right thing to do.
HOW SHOULD A DEVELOPER AND A BANK COLLABORATE ON A CRA PROJECT?
It's important for developers to stay in close communication with their finance partners. Inform them of what your development plans might be in the next 18 to 24 months. This will help match our respective needs more closely. Though the more specific the better, something as simple as telling us the type of development, city, and relative timeframe is useful. As a result, a financer can consider your current pipeline and make it clear where they are especially motivated to do a deal, debt or equity. A developer, in turn, might find this insight as helpful.
- In the last 20 years alone, CRA-covered banks have made nearly $800 billion in community development loans and investments.
- Usually, high-density, urban locations coincide with areas of high CRA need across the landscape of financial institutions.
- We advise developers to stay in close communication with their finance partners.