December 19, 2007
Buying and Selling Loans for the Good of Communities
by Anne Moore Odell
The Community Reinvestment Fund USA offers investors a way to help keep capital flowing into
community development organizations.
Started in 1988, the Minneapolis-headquartered Community Reinvestment Fund USA (CRF) works to create liquidity for the community development
finance system. It buys loans from public and private non-profits and governmental community
development organizations and pools the loans together into asset-backed debt securities.
CRF then makes the securities available to institutional
investors. Since its inception, it has enabled organizations to lend almost $1 billion dollars to
This secondary market for community and economic development
loans makes it possible for the original community development lending organizations to collect
almost all of the moneys owed them much more quickly than if they were to wait for the loans to be
repaid. Lenders are therefore able to offer more loans to the people and communities they serve.
“We concluded our fiscal year on June 30, 2007, with one of the strongest years in our
history,” said Frank Altman, President and CEO, CRF USA. “We exceeded many of the goals we set out
to achieve. In particular, we delivered more than $210 million to low-income communities using the
power of the secondary market as a sustainable resource to rebuild communities. This was the
highest volume in our history. In the face of the early signs of the melt-down of the credit
markets, we ended the year with in increase in net assets of more than $1 million,” added Altman.
Through its partnerships with community development organizations, CRF has served over
100,000 families, resulting in 32,789 jobs created and retained, 15,771 affordable housing units
and funding for 457 minority- and women-owned businesses.
CRF works with community
development lenders when buying the loans, and either services the loans, or the community
development organizations themselves can continue to service the loans. CRF is sensitive to the
borrowers of the loans they service, with staff trained to recognize issues around first time
borrowers. CRF also can help with training and technical assistance.
CRF is aware that the
borrowing to invest or “leveraging” has been used in the past unethically. However, it explains
where all its funding comes from and how its loans are repaid. CRF allocated 2% of a debt security
as protect against possible losses, and typically this 2% is from charitable grants. A little less
than 20% of the funding is from “social investors” who are repaid on different terms than people
looking for market-rate investments. These equity-equivalent investments (EQ2) are often repaid at
a lower interest rate or on a different repayment schedule. The majority of the funding (80%) is
from institutional investors who get a market rate of return.
Social investments enable
CRF to attract more market-rate capital, which in turn, creates more funding for economic
development Altman explained. Social investors financial returns range from 1% to 4%, depending on
the nature of their investments.
In addition, CRF has recently created a Program Related
Investment (PRI) for institutional investors and high-net-worth individuals with qualified
investment advisors. It is structured like a traditional PRI with a below market rate of return.
Investors receive updates to how the loan moneys are spent. The minimum investment for the PRI is
$500,000, with interest rates being negotiable.
“In our 19 year history, CRF has pumped
nearly $1 billion into low and moderate income communities and it has never missed a payment to its
investors,” explained Altman. "As importantly, investors should expect superb social impacts These
funds have been used to create affordable housing, schools and multi use facilities, support small
businesses and build the capacity of community lenders to utilize the secondary markets to bring
more capital to underserved communities."
While social investors receive an economic
return that is below market, the notes that CRF issues to institutional investors are rated by
Standard & Poor’s and carry interest rates commensurate with their risk. Additionally, banks
receive Community Reinvestment Act (CRA) Credits for making community investments in CRF.
CRF has made loans in rural and urban communities in 46 states and investors can often chose a
specific geographical location to invest in.
“We monitor our performance monthly and
report on our performance quarterly against the goal,” said Altman. “Investors receive quarterly
updates on our progress. Over CRF’s history, we have delivered more loans in targeted geographies
than our investors have required.”
CRF was recently awarded a Social Capital award by Fast Company Magazine and
Monitor Group. The annual awards are given to
non-profits that use “the tools of business to solve the world’s most pressing problems.” The
January 2008 edition of Fast Company Magazine will feature CRF and other non-profits acknowledged
by the award.
“CRF is one of the nation’s largest community development entities, and has
been a true leader in the secondary market for community development loans,” Tammy Hobbs Miracky,
Senior Consultant for the Monitor Institute, told SocialFunds.com. “The scale of CRF’s impact is
large, which has freed significant capital that can be reinvested in community development
“I am thrilled we have been recognized with a Social Capitalist award,” said
Altman. “We always have sought to harness the financial clout of Wall Street to benefit the small
businesses of Main Street, so this award is particularly meaningful. Being recognized as a social
capitalist pioneer urges us all to redouble our efforts to drive community impact in economically
underserved areas throughout the country.”
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