Banks Draw Up Rules on Loans to Builders of Affordable Housing
A consortium of California banks adopted preliminary guidelines Thursday for lending more than $100 million a year to builders of affordable housing throughout the state.
To qualify for a loan from the organization, a developer must agree to set aside at least 51% of the units in a project for persons classified under the rules as low income or very low income.
The consortium, the California Community Reinvestment Corp., was formed in September and has grown to 24 banks. It is the first time that California banks have joined to finance affordable multi-family rental housing.
Creating the guidelines was one of several organizational matters decided at a consortium meeting in San Francisco.
The loan rules define low income as families with income from 51% to 80% of the median income for the area in which they live, while very low income was set at 50% of the median or below.
Mix of Income Levels
In a mission statement adopted Thursday, the organization said it wants to provide financing for the highest number of living units in the areas where the need is greatest. It plans to target projects providing rentals for a mix of income levels and those that provide for large families.
The organization also decided to make loans available to both for-profit and nonprofit developers and recommended criteria for determining the fees and terms on loans. The fees, terms and loan guidelines will be reviewed by an investment committee later.
The consortium expects to begin making loans in fall 1989, according to John R. Trauth, executive director of the San Francisco Development Fund, a nonprofit organization that conceived the project.
Banks have come under increasing pressure from community organizations to increase lending to low-income and moderate-income neighborhoods, particularly for new housing. The reinvestment corporation offers banks the opportunity to fulfill part of that obligation and spread the costs and risks among other institutions.
Revolving Loan Fund
Los Angeles-based First Interstate and City National Bank in Beverly Hills recently joined the organization, so the state’s nine largest banks are members, along with 15 smaller institutions.
The banks will pledge the initial money for a revolving loan fund according to a formula based on the size of the bank. The initial $100 million in loans will be sold on the secondary mortgage market and the revenue from the sales will be lent out again, expanding the impact of the program beyond $100 million.
Two types of loans are involved in a multi-unit residential project: A short-term construction financing loan covers the actual cost of building; permanent financing is arranged to pay off the construction loan.
The consortium will provide loans for permanent financing but decided Thursday not to provide construction loans. Some banks objected to the construction financing because they currently make those loans. In addition, by providing the permanent loan up front, the banks expect to make it easier for developers to obtain construction financing.
