A Key Community Funding Tool

Joseph Poirier (left), president of member Greenfield Savings Bank, and Theo Noell, senior community investment manager at the Federal Home Loan Bank of Boston, visit Green Fields Market in downtown Greenfield, Massachusetts. The market was renovated with help from CDA funding.

By John Baity
For many members, the Federal Home Loan Bank of Boston's Community Development advance (CDA) is a critical tool for supporting small businesses, creating multifamily housing, and expanding Community Reinvestment Act (CRA) initiatives in their communities.

In addition to satisfying the needs of lenders, the CDA program also meets borrowers' demand for long-term funding at today's historically low interest rates. Many community housing and economic-development programs are eligible for CDA funding.

As the lowest-rate term funding offered by the Bank, the CDA is a valuable tool for structuring low-cost community loans in today's competitive lending environment. Many members may not be aware of the broad array of loans eligible for CDA funding. These include loans to "small business concerns" as defined by the Small Business Administration. Most of our members' community-based commercial lending falls into this category. Also eligible are businesses located in census tracts at or below 100 percent of median income, and first-time home buyers making at or below 115 percent of median income.

In 2003, members submitted 136 CDA applications and received approval for $366 million in advances to finance 63 housing and 75 economic-development initiatives. Since 1990, the Bank has approved $3.8 billion in CDAs to fund 37,551 units of housing and 167 economic-development or mixed-use initiatives.

Benefits of the CDA Program The benefits of the CDA program include:

• A substantial reduction in funding cost on term advances, such as Classic and Amortizing advances;

• A strong vehicle for pricing and match-funding fixed-term loans — both commercial and residential mortgages — to improve members' loan-origination potential and profitability;

• Supporting community-lending initiatives and increasing CRA lending;

• Utilizing CDA in connection with the Bank's housing programs, such as the Affordable Housing Program (AHP) and Equity Builder Program (EBP).

Bank Staff Can Help The Bank's community investment and relationship managers offer community-development consultations to help members effectively use the CDA program for commercial and residential lending. The Bank's managers work with members to identify qualifying loans and community-lending programs, outline funding strategies for the CDA to meet asset-liability objectives, and review CRA lending goals.

Lenders at member institutions can identify eligible loans by:

• Reviewing qualifying loans closed in the last 90 days;

• Scanning for qualifying loans in the loan pipeline that might qualify;

• Estimating the next 12 months of CDA-eligible loan originations;

• Creating a new program that meets CDA requirements; or

• Utilizing development-organization programs that confer benefits to CDA-eligible borrowers.

After the eligible initiatives have been identified, an institution's finance officer completes a CDA application through FHLB Direct — the Bank's online information and transaction service — or downloads an application from the Bank's Web site.

Managing Your CDA Borrowing To effectively manage a member's CDA program, an institution's financial manager should ensure that CDA applications reach the institution's approved limit. Establishing CDA up to the maximum permissible amount gives members the flexibility to take down low-cost funding when needed and respond quickly to lending opportunities.

The total potential CDA borrowing capacity is equal to the greatest of $10 million, 100 percent of the member's average capital stock held in the previous year, or 15 percent of the institution's advances outstanding in the previous year. Borrowing capacity represents all approved CDA applications.

CDA applications expire within one year of the date of approval unless CDA funds have been borrowed. Members should regularly monitor their CDA borrowing capacity to determine if they have room to submit additional CDA applications. After an application has been approved, there is no obligation to borrow.

Please feel free to call the Bank's community investment and relationship managers to discuss any aspect of the program or to request a community development consultation. For additional information on the CDA program, please visit the CDA page on the Bank's Web site.

(John Baity is the Bank's relationship manager for northern New England.)