As the luxury housing boom continues and glass-and-steel "supertalls" pierce the skylines of cities like New York, the benefits show little sign of trickling down to low-income renters.
Homeownership is at its lowest level in 50 years, yet even as millions of people have been pushed into the rental market, the United States is losing more than 300,000 affordable units each year, according to the Department of Housing and Urban Development.
Amid the runaway affordable-housing crisis, a longtime expert on the Community Reinvestment Act has rounded up 10 banks to invest in a $25 million fund that aims to encourage the development or rehabilitation of affordable single- and multi-family properties.
The Community Development Fund, which began trading on the Nasdaq last month, invests in government-guaranteed mortgage-backed securities. Its aim is to spur more development of affordable housing by giving lenders another option for selling their community development loans. Banks that invest can expect modest returns as well as favorable consideration from federal CRA examiners, said Ken Thomas, the president of Miami-based Community Development Fund Advisors, which started the fund.
For Thomas, the fund is the culmination of a lifetime's work on CRA and fair-lending practices, both as a finance and economics professor the University of Pennsylvania's Wharton School and as an independent consultant to financial institutions. Living in Miami, one of the least-affordable housing markets in the country, has given him an intimate understanding of the need for good housing stock among low- and moderate-income families, he said.
He opened the fund to initial subscribers in February. Thanks to his connections with banks in Florida and beyond, he had no trouble drumming up interest. "It was not a hard sell," he said.
Each investor owns a piece of a nationwide fund, but the capital each contributes is earmarked for investments in their own community, Thomas said.
"When you start with $25 million, you can make an impact right away," said Jerry Campbell, the chairman and chief executive of Tampa-based HomeBanc, one of the 10 initial investors in the fund and one of seven headquartered in Florida. HomeBanc contributed $1 million to the fund.
Instead of making an individual effort in its community, the $1 billion-asset bank has an opportunity through the fund "to support the affordable-housing market with some force and some real dollars that can truly make a difference," Campbell said.
Participation in the fund could go a long way toward ensuring the banks pass the investment portion of their CRA exams. And as a side benefit, all investors in the fund receive Thomas's consulting services gratis. The banks are free to call and pick his brain about the CRA or related issues at any time, he said.
Other banks that contributed to the fund are: City National Bank, Coconut Grove Bank, Sabadell United Bank and Total Bank in Miami; Gibraltar Private Bank & Trust in Coral Gables, Fla.; Florida Community Bank in Weston; UMB Bank in Kansas City, Mo.; NorthEast Community Bank in White Plains, N.Y.; and Century Savings Bank in Vineland, N.J.
In time, Thomas plans to grow the fund beyond its initial investor pool. "There's a lot of demand out there, and a lot of banks are contacting us. But our No. 1 goal is to serve our customers and we're going to grow in a very controlled way."
About half of the $25 million has already been used to purchase bonds. Similar securities have historically generated interest-rate returns of between 2% and 3%, he said.
Campbell expects the yields to be similar to those of long-term mortgage bonds, perhaps as high as 4%. "That's a good, fair yield," he said. "That's above prime. But more importantly, it's putting the salve on the right wound."