By
David Parish
 |
| The
AHP-funded St. Jean Baptiste development in Lynn, Massachusetts. |
In recent years, the words “brilliant” and “Congress” have
not often been used in the same phrase. But in 1989 Congress passed
legislation relating to the Federal Home Loan Bank System (the System)
that qualified as thoughtful and constructive.
Following the savings and loan failures of the late 1980s, Congress
undertook a restructuring of the System designed to address issues
of safety and soundness as well as the public mission of the organization.
The changes to the System were many, but two stood out for the contributions
they made to the nation’s supply of affordable housing. The
first was the creation of an Affordable Housing Program (AHP) to
be administered by the Federal Home Loan Banks (FHLBanks); the second
was a change in membership rules that allowed any federally
insured financial institution — such as savings banks, commercial
banks, and credit unions — to join the System. These two changes
resulted in what some have termed one of the most efficient and effective
affordable-housing finance programs in the nation’s history.
With similar legislation currently being considered for other government-sponsored
housing enterprises, it is worth considering some of the factors
that have contributed to the success of the AHP.
A Simple Formula
The legislation establishing the AHP states that the System shall
establish a program in which 10 percent of the net earnings of each
of the FHLBanks shall be set aside to finance affordable housing.
Implementation of the mandate was left to the System and to the individual
FHLBanks. A critical link was established between the ability of
the System to contribute to the finance of affordable housing and
the effective management and profitability of the individual FHLBanks.
For many years prior to the passage of the AHP legislation, individual
FHLBanks had administered reduced-rate loan programs to promote both
affordable housing and community economic development within their
districts. Early sponsorship of what is now the Neighborhood Reinvestment
Corporation built valuable ties to the national housing advocacy
network. Experienced staff, both at the national and district levels,
allowed for an appropriate and creative response to the congressional
mandate.
Early in the implementation process, the decision was made to allow
the FHLBanks to administer both outright grants and reduced-rate
loan programs to help fund affordable housing. The FHLBanks were
also allowed to finance the full range of affordable-housing initiatives,
including single- and multifamily housing, homeownership and rental
housing, new construction, and rehabilitation.
The decision to seek a degree of national uniformity for the program
while still allowing for flexibility in administration at the district
level encouraged communication and a healthy degree of competition
among the FHLBanks at the national level and innovation at the local
level.
The importance of the regional structure of the System can’t
be overemphasized. It has allowed an individualized response to housing
needs at a local level that harmonizes well with the localized nature
of the nation’s housing-finance and construction system. Because
of their prior commitment to affordable housing and community economic
development, the FHLBanks also had well-established relationships
with a network of local lenders experienced in and committed to the
finance of affordable housing.
Broadening Membership
 |
| The AHP-funded
Unity Village development in Portland, Maine. |
Allowing additional financial institutions to enter the System contributed
to its profitability and expanded its already impressive reach into
the nation’s communities. Access to the AHP was seen as a competitive
advantage for local financial institutions and resulted in healthy
competition for AHP funding.
Along with the importance of the System’s regional structure
to the success of the AHP, engagement with the nation’s housing
development community cannot be overlooked. The early decision to
market the AHP to member banks as well as for-profit and nonprofit
housing developers ensured a strong demand for program funds.
The requirement that the individual FHLBanks form AHP Advisory Councils
warrants the “brilliant” designation for congressional
action. Over the years, the Advisory Councils have provided the insight
and integrity necessary to develop and administer the AHP effectively. The
Advisory Councils have also been very effective in encouraging membership
in the FHLBanks and use of their products and services.
Advisory Council awareness of national and local housing development
and preservation issues combined with a sophisticated understanding
of finance by committed local FHLBank boards and staff have produced
a uniquely broad and responsive partnership.
Predictability
and Transparency
Because the demand for AHP funding consistently outstrips the supply
of funds available, it has been particularly important that the
project selection process be as transparent and impartial as possible.
Although disappointment is an inevitable part of the competition
for scarce funds, oversight of the program by the individual FHLBank
boards and Advisory Councils has contributed to the fair and equitable
management of the AHP. In addition, the Federal Housing Finance
Board’s examination of the local AHP programs has encouraged
a degree of uniformity and predictability in the local administration
of the program.
The many local successes of the AHP have resulted in a program that
has met both public and congressional expectations. Strong congressional
support for the AHP has allowed the commitment of the FHLBanks to
affordable housing to remain consistent and strong during a turbulent
period for the nation’s housing-finance system. T
|
