December 22, 2022

By Monica Hogan, Inside Mortgage Finance

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Mortgage lending trade groups and community advocates recently offered tips to the Department of Housing and Urban Development and other government agencies on how federal programs can better facilitate the flow of capital and provide financial resources to historically underserved communities.

In comments this week in response to an Interagency Community Investment Committee request for information, some asked for more access to federal funding for community development financial institutions.

For example, the National Association of Affordable Housing Lenders wants the committee to allow CDFIs to participate in FHA’s multifamily risk-sharing program and, in turn, Federal Financing Bank funding. It said CDFIs are “well positioned to provide the long-term, fixed-rate multifamily mortgages that are especially important to historically underserved communities, including the small-scale entrepreneurs of color that own and operate smaller properties.”

NAAHL noted that, under FHA multifamily risk sharing, “the lender agrees to take 50% of any loss on a loan and, in return, the lender uses its own underwriting standards.”

The alternative is FHA’s Multifamily Accelerated Processing platform and most CDFIs don’t have the internal capacity to follow the extensive guidelines for MAP, the group said.

In addition, it said, MAP “transactional costs are prohibitive for the smaller loans that are important in underserved communities, including communities of color, low- and moderate-income communities, and rural communities.”

NAAHL doesn’t think Ginnie Mae presents a viable alternative to FFB funding for multifamily risk sharing, noting that no CDFI is currently a Ginnie issuer of multifamily loans.

It seeks bipartisan Congressional legislation to formalize FFB funding for CDFIs seeking access to FHA multifamily risk sharing.

The American Bankers Association wants the ICIC to “facilitate the layering of public, private and philanthropic capital to increase project success” in underserved communities. It also asked for a removal of barriers to bank participation in the Low-Income Housing Tax Credit program.

The National Bankers Association said there aren’t enough minority-owned banks to meet the demand in low- and moderate-income communities, noting that Black and brown Americans are more likely to have access to “fair and reasonably priced” mortgage loans if there’s a minority-owned financial institution in their neighborhood.

The African American Alliance of CDFI CEOs told the committee, “At a minimum, there must be a commitment to increased long-term capital and equity investment in minority led financial CDFIs to address gaps in access to mortgage lending and small business capital.”

Pacific Community Ventures wants the federal government to “meaningfully collaborate with CDFIs in efforts to deploy critical capital resources to underserved Black and Brown communities.”

Partners for Rural Transformation said that “financial institutions that receive CDFI Fund support should be held accountable to serve borrowers of color.” It found particular challenges for Black borrowers in gaining access to mortgage credit from CDFIs in the Deep South.

The National Rural Housing Coalition called for more resources devoted to administering the U.S. Department of Agriculture’s Section 502 home loan program, especially to fund information technology and staffing for the program.

“As hard as it may be to believe, in 2022, only about half of Section 502 direct mortgage applications are submitted electronically,” NRHC said. “In many cases, applicants still use paper forms.”

The Housing Assistance Council said it would like to see more interagency alignments, such as collaboration between HUD and USDA that blends program funding and streamlines administration functions.

“Rural self-help housing organizations often combine site development funds from HUD’s Self-Help Homeownership Opportunity Program (SHOP) with home purchase mortgages from USDA’s Section 502 direct loan program,” HAC said. But in 2019 USDA adopted a new income banding approach to qualify homebuyers. This made some families eligible for Section 502 but not for SHOP, HAC said, until HUD allowed some income banding in 2020.

HAC wants HUD to “widen this beneficial effect” by extending the same rule changes to other HUD housing funding programs.

USDA’s Rural Housing Service should also report Section 502 direct loans under the Home Mortgage Disclosure Act, HAC said, to “help provide a more comprehensive picture of rural mortgage dynamics and also highlight the dynamics of a source of quality and affordable housing finance provided by USDA.”