The connections between the banking sector and the nonprofit community development industry are long and deep. At the National Alliance of Community Economic Development Associations annual meeting last week, a number of bankers were visible among the participants, including three who spoke about those connections: Natalie Abatemarco, Citi Bank; Ken Wade, Bank of America, and Dennis Lagueux, TD Bank.
For state nonprofit associations and the national organization, these banks are important partners. All three have supported NACEDA financially, helping keep the organization alive and functioning in a difficult economic environment. There was no contentious debate to be had at last week’s meeting, but instead a joint exploration of avenues of partnership and problem-solving.
Three issues dominated the discussion: bank (and CDC) challenges with the future of the Community Reinvestment Act (CRA), the lurking challenge of the mortgage foreclosure crisis, and bank financial support for CDC associations, that is, the bank community development infrastructure.
What is right and wrong with CRA?
That was the question posed by Sam Yoon, NACEDA’s executive director. TD Bank’s Lagueux gave a full-throated defense of CRA from a banker’s perspective, saying, “it didn’t cause [the financial sector] meltdown, everything is right about it, it should move forward and be expanded.” As a tool within the bank, Lagueux added, “CRA is needed more at this time than any, because it helps us pilot through deals that have a lot of pieces to it, it gets us through the door.” Community reinvestment-focused bankers such as these panelists explain that they often have to sell CDC financing deals to others within their institutions because they don’t look like the easier, simpler, vanilla lending opportunities that a bank might prefer. They can explain to their banking peers that these complex CDC deals, with layers of private financing and public subsidies, can and should receive the bank’s financial support.
Nonetheless, Lagueux and his peers offered a variety of complaints about the mechanics of CRA. Abatemarco and the others all said that there are multiple debates between the banks and the regulators about what investments are CRA-eligible and which metropolitan areas they should be counted for. Lagueux added to the complaints the difficulty of specifically identifying low- and moderate-income (LMI) individuals and LMI communities, especially since the regulators change the interpretations, for example, rejecting Medicaid eligibility and school lunch eligibility as LMI proxies. He also complained that for CRA credit, the regulators count deals as opposed to money, so a large complex financial investment and a tiny bank loan for an affordable project both count the same, as one “unit” of CRA credit. He believes that the unit of analysis shouldn’t be the deal, but the financial size of the investment. Abatemarco noted the focus of CRA on lending and investment and suggested that the law needed mechanisms to give credit to the banks for their programs of savings and asset-building for LMI people.
Relatively new to the Bank of America after long service as the CEO of the NeighborWorks network, Ken Wade said that the environment of banking has changed drastically from the days when CRA was first enacted. Back then, he said, banking was largely geographically focused and CRA pushed banks to fulfill their obligation to meet the credit needs of their communities. Now, he said, there are national banks like BofA and Citi (TD is considered a regional bank), Internet banks, etc. The geographic focus doesn’t really work and leads to a significant disparity that he and Lagueux both pointed out. Rural areas don’t end up becoming service areas for CRA-complying national banks. As a result, BofA and other large banks can meet their CRA obligations by doing urban deals and, consequently, rural communities get left out. Lagueux confirmed the same for a “regional” bank like TD Bank, whose service area stretched from Presque Isle, Maine to Miami, Fla,, meaning that it can meet its CRA lending obligations with investments in the cities – potentially short changing rural. “Urban environments can suck up all the resources,” Wade said. “No one is competing for rural communities . . . that’s one of the ways the law plays out.”
Abatemarco said that these ongoing CRA interpretation complexities take her away from focusing on what she should be doing – innovating and providing thought leadership in community development. Terry Chelikowsky of the Florida Alliance of Community Development Corporation noted that “the bank folks are stretched so thin,” often unavailable to participate at the state association level, though New Jersey’s Diane Sterner offered a very different perspective, citing the active participation of lenders in programs and committees, particularly in generating new products needed by the CDC sector.
This topic got relatively little attention at this year’s annual meeting, perhaps because the three panelists were addressing CDCs on production, not prevention, and perhaps because the foreclosure dynamic is still going on full-force, with few people still able to get a solid grip on the issue and an ability to envision possible solutions. Wade noted that Bank of America had hired 20,000 people to work on loss mitigation, reflecting the very different risk environment enveloping banks. He acknowledged that “there are going to be many more foreclosures before all is said.” Like his colleagues, he suggested to this CDC-focused audience that the banks would likely work on foreclosure issues through the Neighborhood Stabilization Program efforts to reclaim and redevelop foreclosed properties.
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Abatemarco raised a very different issue. She noted that early on in the foreclosure crisis, perhaps half of people going into foreclosure acknowledged that the hadn’t called their banks, leading to foreclosure mitigation efforts to get borrowers together with banks to work out solutions. Now, she complained, advocacy against the banks, portraying the banks as “bad or greedy” with practices such as robosigning, etc., is making the average borrower lose trust in the bank and deter them from turning to the banks for solution. In the consumer protection regulation now being implemented, she suggested that there is a problem of the legislators and regulators pushing for consumer protections before they know that there’s something really wrong. Abatemarco suggested that this kind of negative advocacy was “starting to hurt us in our ability to do outreach.”
Whither bank philanthropy?
According to Yoon, the community development sector has to be pragmatic; it has to occupy the space between those who advocate for legislative or regulatory change and those who have affordable housing financing deals to make. But he acknowledged that his state association members have advocacy components, they want the national association to do advocacy, but the problem is how to get funding to pay for that function. Perhaps because he came to the bank only recently from a national nonprofit, Wade acknowledged the challenge, that community developers have an obligation to call out banks for bad behavior when it is warranted. Though he also asked that they speak out in support of banks when the banks are doing the right thing – and hopefully they shouldn’t have to be called by the banks to turn out when there is something positive to be said.
Wade pointed out that sometimes the bank criticisms come from advocacy organizations that are not in the CDC world, but the reality is, as he said, that “groups in community development walk a fine line between advocacy and development, it’s hard to picket a bank on Monday and negotiate a loan on Tuesday.” He implied that the banks as well as the CDCs are aware of the balancing of the roles and would not be naïve in their expectations.
Abatemarco and Lagueux both pointed out a “firewall” between their banks’ foundations and the community reinvestment operations. The foundations do not give grants to CDCs with a quid pro quo of any sort that they generate business for the banks (for example, in terms of leading LMI homepurchasers to the banks’ mortgage products). While they cannot give grants that lead to specific bank business, Abatemarco said that they are focusing on community development that “aligns with our mission.” In Citi’s case, the foundation is looking at community development focused on innovation and thought leadership. For TD Bank, the philanthropic priorities are affordable housing, financial literacy, and economic development, but they debate internally the perennial philanthropic debate: Should they give a few large grants to a small number of recipients, or many smaller grants to many nonprofits?
The future of the connection between banks and community development could be summed up in a message that Wade suggested as a conclusion on bank philanthropy. CDCs and state community development associations have to talk not just about the number of widgets (deals, units) they produce, but on the collective economic impact derived from their work. He suggested that CDCs need a different way of telling the story of what they are accomplishing. One might wonder whether Wade was also giving that message to the bankers in the room, that the banks needed to rethink how they talk about and relate to communities. They might argue about how to take credit for CRA-eligible investments, but the bigger question is how banks are building and strengthening low- and moderate-income communities and families.
It is an interesting dynamic. On the bank side, the bank community reinvestment people generally come from nonprofit and community development backgrounds. Yet they function in arenas where their colleagues may be less than automatically sympathetic to nonprofit community developers, especially those that might take challenging positions regarding advocacy calling out banks for behaviors on foreclosure, for example, that have undermined neighborhood stability across the nation. For the CDC associations – and often for CDCs themselves – the banks are frequently their primary philanthropic partners and supporters. Even if the banks are represented by the likes of Ken Wade, who know and appreciate the multiple development and advocacy roles of CDCs, the CDC grant recipients might feel constrained about being quite as vocal with their critiques as their origins in the civil rights movement might suggest. Philanthropic partnerships make for interesting bedfellows.