News
A new report by the GIIN and the Carsey School of Public Policy provides an overview of the U.S. Community Investing field: the types of intermediary organizations raising investments, the range of available investment products and the types of investors active in the space. The principal challenge facing CDFI banks, the authors write, is the lack of liquidity of equity investments. CDFI bank stocks are generally not publicly traded and few mission-driven banks who have publicly offered stock have been able to continue as independent entities. As a result, investors must generally hold on to their equity investments for long time frames. However, CDFI banks are also innovating; for example, Southern Bancorp is exploring an equity raise in which it would use its Employee Stock Ownership Plan to provide a takeout mechanism for shareholders.
In the Deep South, shriveling job prospects for the high-school-educated and scant state support for the poor have combined with more timeworn social problems to diminish the chances of a middle-class life for somebody born into poverty. In Mississippi, the 86 members of Ruleville Central’s senior class attended a school given an F grade by the state. Some new graduates went off to local colleges. Others lacked money or test scores. One turned down an offer from his dream school because of the cost. The school’s guidance counselor said she can count on her hand the ones who will finish college. Often, those who do graduate these underperforming schools find themselves searching for low-paying jobs in states that have been reluctant to fund programs that help the poor.
The CFPB has finalized a rule that will require new fields to be submitted for the Home Mortgage Disclosure Act (HMDA). The rule is intended to shed more light on consumers’ access to mortgage credit with new data including the property value, term of the loan, and the duration of any teaser or introductory interest rates. Financial institutions will be required to provide more information about mortgage loan underwriting and pricing, such as an applicant’s debt-to-income ratio, the interest rate of the loan and the discount points charged for the loan. Some small financial institutions and institutions that operate outside of MSAs will be exempt from the new rule. Most of the provisions of the final rule will take effect on January 1, 2018, with the first report submission due March 1, 2019.
The CFPB backed off some of its initial plans in its final rule requiring lenders to collect more data from mortgage borrowers, but industry representatives warned the agency had not gone far enough. Though the agency dropped some datasets it initially proposed to collect last year, some lenders said the final rule was still going to be overly burdensome, particularly for smaller institutions. There also remain privacy concerns from both industry and consumer groups. Lenders must now report the address of the home, which could pose additional risks. "The CFPB's final rule [adds] to the excessive regulatory burdens for many community banks, which will further restrict access to credit in local communities," said Camden R. Fine, president and chief executive of the Independent Community Bankers of America.
United Bank of Atmore, Ala. is helping local students receive free books by working with literacy nonprofit First Book. First Book provides access to free new books for children in need. United Bank will pay shipping and handling to send the books to Pre-K and kindergarten students at Perdido Elementary School. In addition to delivering the books, United Bank Executive Assistant Tonya Lambert took time to read a story in each of the classrooms. "The best part about the initiative is that students can bring the books home and don’t have to return them," said Lambert. “They said, ‘you mean I don’t have to bring this book back? This is my own book?’”
CDBA is following up on the energetic discussion we had in last week's webinar on the FHA Small Building Risk Sharing (SBRS) program with a second webinar (October 20, 2015) that will delve into the fine detail of the application process. The SBRS program promotes multifamily housing project financing by providing lenders a 50% risk sharing arrangement with HUD. The presentation will be led by SBRS Initiative expert Diana Talios of the FHA. The webinar is free to employees of CDBA member banks and $75.00 for registrants from non-member banks. Please note that registration for this webinar is separate from the previous webinar, so please register now even if you attended the previous webinar.
Financial education website NerdWallet is now featuring CDFI banks and credit unions as a socially responsible alternative to big banks. NerdWallet is a resource that enables users to search a database of hundreds of financial products to find the best products. To have your institution's products listed on NerdWallet -- a great way to make them visible to a young, tech-savvy audience -- sign up for free here. In its writeup of CDFI depository institutions, NerdWallet highlighted New York based Spring Bank. Before Spring Bank opened, many low-income residents relied on check cashers and other high-cost alternative lenders. Someone lacking a strong conventional credit history might successfully apply for a loan at an 18 percent interest rate at Spring Bank, while a similar loan from a payday lender might charge up to 400 percent.
Virginia Community Capital has opened a new office in downtown Norfolk, Va. to enhance its lending capability throughout Virginia. The first loan made through the office will be to Conte Acquisitions, LLC, which will receive the innovative capital they need for a multi-tenant retail building. Thresa Joyce, senior vice president and senior loan officer, will lead the opening of the office. Ms. Joyce has over 20 years of experience in the financial and commercial real estate industries. Jane Henderson, VCC’s President and CEO stated, “VCC is very pleased to announce the opening of our new office in Hampton Roads. We are looking forward to expanding our presence in this region, helping more people and more communities.”
Community bankers provide relationships to small business clients that the big banks can't match, writes Mission Valley Bank President and CEO Tamara Gurney. "Any street corner bank – big or small – can handle the transactional side of banking, but it takes a team of trusted advisors who understand a client’s business to develop programs to meet their exact needs," Gurney writes. "It is that aspect that gives community banks a distinct advantage over the larger institutional banks that often gain new customers with teaser rates and short-lived promotions but don’t deliver long term results... Even with the changing physical landscape and technological advances within the banking industry, it still comes down to having a banker who is willing to partner to help a business achieve success."
Merchant cash advance wholesaler Pearl has been sold to private equity firm Capital Z Partners after a courting period by buyers including blue chip firms such as Goldman Sachs. Merchant cash advance is a legal, unregulated way to lend money to small businesses at interest rates as high as 250 percent. To get around state interest limits, the companies argue they aren’t charging interest—they’re buying the money businesses will make in the future at a discount. Pearl’s innovation is to preempt clients’ existing debt by offering a second advance to borrowers who had already received an advance from another broker. Pearl's advance, due in two or three months, must be paid off before their original debt. Pearl reached loan volume of $100 million in 2013. Last year, merchant cash advance surpassed the SBA as a source of loans for less than $150,000.