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By Theo Noell and Shira Bergman
Like all members, credit unions have been discovering that the
Federal Home Loan Bank of Boston (the Bank) can help them achieve
their lending goals through increased access to liquidity and long-term
funding. Because credit unions are chartered as community organizations
designed to serve their membership, they are ideally suited to take
advantage of Bank products and services.
Credit unions often utilize the Bank's Community Development advances
(CDAs) to support their community-lending focus. Credit unions cite
several reasons for using CDAs, including balance-sheet management
and term structure. CDAs provide members with the lowest-cost source
of funding to manage the long-term interest-rate risk associated
with their lending activities.
Leveraging the Bank to Support the Community
St. Mary's Bank, the nation's first credit union, has been a Bank
member since the end of 1996. Based in Manchester, New Hampshire,
St. Mary's has been approved for three CDAs since 1997. St. Mary's
borrowed $13.39 million of seven-year term advances to fund its
single-family mortgage-lending program, serving 156 families at
or below 115 percent of the area median income. Bruce Leighton,
chief financial officer of St. Mary's, noted, "The CDA was
a good fit because mortgage lending is St. Mary's core product,
and most of our membership is low- to moderate-income."
St. Mary's has provided loans to small businesses in Manchester
for over 16 years. In October 2003, St. Mary's was approved for
a $10 million CDA to aid its small-business lending program. These
funds will help pay for working capital, equipment, and commercial
mortgages. Leighton elaborated, "Credit unions are often well
suited to do small-business lending, and there is a vital niche
that they can fill. Credit unions can fulfill their mission by aiding
the economic development of the area as well."
St. Mary's also sustains strong community partnerships with organizations
like Manchester Neighborhood Housing Services, Inc. (MNHS). Bruce
Croteau, senior vice president at St. Mary's, serves on the board
of directors at MNHS. This past April, in partnership with MNHS,
St. Mary's was awarded a $60,344 grant through the Bank's Equity
Builder Program to provide down-payment assistance and mortgage
financing to help moderate-income families purchase homes. St. Mary's
will provide the first mortgage and MNHS will provide homeownership
counseling to each of the home buyers.
Taking the First Step
In 2004, Millbury Federal Credit Union (MCU) borrowed $1.5 million
in a 20-year amortizing CDA to help refinance a 48-unit elderly
housing property owned by a local nonprofit housing association.
By using a CDA, MCU was able to borrow at a lower cost, and thus
lend at a lower rate to the borrower. Robert Hobson, senior vice
president and chief financial officer of MCU, explained, "This
was the first time that MCU received funding from the Bank. We borrowed
specifically to maximize our value as a lender to our members and
continue MCU's tradition of outreach into our community. Borrowing
from the Bank helped us provide a good term structure and save significant
interest costs for our ultimate borrower in the community."
Working with the Bank
The credit unions' lending process revolves around the lenders who
identify the business, and the chief financial officers who work
to fund it. As Bruce Croteau of St. Mary's discovered, using a CDA
is often simply a matter of communication between both parties.
When he learned about CDAs, he spoke with his CFO and discovered
that the CDA fit well into a strategy to match some of the lending
already present on their balance sheet.
The Bank's relationship managers and community investment managers
are valuable resources for new members and those new to using Bank
products. John Baity, the Bank's relationship manager working with
members in Maine, New Hampshire, and Vermont, explained, "My
goal is to help our members better serve their customers. I encourage
them to design or take advantage of programs that meet requirements
for CDAs, such as lending programs that confer benefits to first-time
home buyers, small-business concerns, or designated member segments
in the community."
Members have found Bank programs much simpler to use than anticipated.
In 2003, the Bank launched an online CDA application. Marylin Sperling,
vice president and manager of consumer services at Greylock Federal
Credit Union, commented, "It's not difficult. When I first
started working on doing those advances, I envisioned a lot of paperwork
and lengthy time to be approved for the program. It's the simplicity
of it all that made it attractive to us."
Many members are happy to find that CDAs do not require follow-up
reports. John T. Eller, the Bank's senior vice president, housing
and community investment, observed, "The initial application
provides the information we need. There is no further reporting
required for CDAs."
Learning More
Some credit unions have avoided commercial lending because of the
perceived risk. But with regulations now allowing credit unions
to partner with credit union service organizations to do small-business
lending, more and more credit unions are exploring commercial-lending
opportunities within the communities they serve. The Bank's CDAs
can help these credit unions expand their community-lending efforts.
Bruce Croteau of St. Mary's stated, "Many credit unions don't
know all the features that the Bank offers for balance-sheet management.
The services the Bank offers are needed even by small- to moderate-sized
credit unions."
The Partnering and Leadership Successes (PALS) program hosted by
the National Credit Union Administration provides educational resources
for credit unions. In June, M. Susan Elliott, the Bank's executive
vice president, member services, spoke at a PALS workshop in Boston.
She emphasized that whether a credit union is a portfolio lender,
active in the secondary market, or planning to be, the Bank's advances
and Mortgage Partnership Finance® (MPF®) programs are invaluable
resources.
Elliott commented, "I was impressed with the PALS meeting
that I attended. The focus on use of wholesale funding as a relatively
new source for credit unions, the emphasis on the need for risk
mitigation for those credit unions holding residential mortgage
loans in portfolio, and the importance of supporting affordable
housing and community economic development gave attendees much to
consider. The Bank has expanded its outreach to its credit union
membership and is eager to explore ways that its products and services
can help credit unions manage risk, improve profitability, and serve
the housing needs of low- to moderate-income families."
The Bank is sponsoring a series of seminars on how its wide range
of products and services can give members a competitive edge. Please
visit www.fhlbboston.com/events for more information. To arrange
an individual meeting with a relationship manager and a community
investment manager to learn how the Bank can help meet your institution's
needs, please call 1-800-595-8733.
Community Development Advance (CDA) Since 1996, the Bank
has approved 22 credit unions for 36 different CDAs, with $182 million
in advances approved and $127 million in advances disbursed. These
CDAs have funded 1,932 units of housing and three economic-development
initiatives across Maine, Massachusetts, New Hampshire, Rhode Island,
and Vermont.
Affordable Housing Program (AHP) HarborOne Credit Union,
Metropolitan Credit Union, Pawtucket Credit Union, Peoples Credit
Union, and the Vermont Development Credit Union are using AHP to
fund 223 housing units with $902,527 in direct-subsidy grants and
over $2 million in subsidized loans. This includes 56 ownership
units and 167 rental units for very low- and low-to-moderate income
households in Massachusetts, Rhode Island, and Vermont.
Equity Builder Program (EBP) The Vermont Development Credit
Union and St. Mary's Bank Credit Union were awarded EBP grants totaling
$224,654 to help home buyers earning less than 80 percent of the
area median income to purchase homes in Vermont and New Hampshire,
respectively.
Theo Noell is senior community investment manager at the Federal
Home Loan Bank of Boston; Shira Bergman is a research intern in
the Bank's Housing and Community Investment Department.
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