CDFI Advance Webinar

0:04
Good morning, everyone. This is Kathleen Amonte at the Federal Home Loan Bank of Boston.
0:09
​We're going to get started in four or five minutes on the CDFI Advance Pilot Program.
0:14
So now would be a good time to refresh your coffee, take care of anything you need to, and we'll get started soon.
0:34
I don't know how to blur my background and go to webinar.
3:10
Good morning again. It's Kathleen Amonte at the Federal Home Loan Bank.
3:13
I'm just seeing attendees register, so I'm not registering to join in.
3:17
So we're just going to give it another minute or two to let as many folks get logged in as possible. Okay, good morning.
4:35
It's 10 o 'clock, so we're going to be respectful of your time and get started with our training. And I'm going to turn it over to Ken Willis.
4:45
Good morning, everyone.
4:46
Thank you for taking some time out of your day today to be a part of this webinar. I want to first introduce myself. My name is Kenneth Willis,
4:55
​Senior Vice President and Director of the Bank's Housing and Community Investment Department, and I'm being joined by Kathleen Amonte and Michael Pingpank. Both are Senior Community Investment Managers, and were also instrumental in developing this product, this program we're going to talk about today.
5:13
So sit back, enjoy, and we're going to give you a lot of really important information on how to utilize this program.
5:21
And so really, just to kind of level the conversation. Again, thank you for participating in today's webinar.
5:28
We're really excited to share this new program that we developed specifically to support non-depository CDFIs and our members to help them meet the lending needs of the communities that they serve.
5:42
And so that is really the context of today's conversation. And we do want this to be a conversation.
5:48
We're going to be holding off on questions until the very end of the presentation
5:53
because we want to get through the bulk of the presentation and give you that information.
5:58
But in terms of questions at the end, you can either raise your hand.
6:01
There's an icon on your screen that allows you to do that, or you can type your question in the chat and we'll read it aloud and answer the question. So with that, this is our agenda today.
6:12
​We're going to go over the bank's mission really quickly.
6:15
We're going to then quickly delve into the CDFI advance program objectives, we're going to talk about the eligibility criteria, the application process, and then again, take your questions at the end.
6:29
So next slide, please.
6:34
Go back one.
6:34
Thank you.
6:35
So just to really love us at the conversation about what the bank is and what we do, the Federal Home Bank of Boston really has a dual purpose mission.
6:45
The first part of that mission is really providing critical liquidity to our member financial institutions, which really underpins the stability of the U.S.
6:55
banking system. Critical liquidity to help you do that.
6:59
The second part of our mission is implementing a variety of affordable housing and economic development programs.
7:06
And all of these programs really support the lending activities that both our members are engaged in, but also outside stakeholders who really do have an interest in affordable housing and economic development.
7:19
And so we're gonna briefly talk about some of those programs and how you can utilize them before we get into the actual meat of this presentation.
7:28
So here is our suite of housing and community investment programs.
7:31
Again, not gonna spend a lot of time on these today, but really wanted to make you aware that as member financial institutions and as CDFIs, there's an opportunity to perhaps leverage some of these programs.
7:44
And so again, not gonna get into a lot of detail, but we have an affordable housing program which supports the development and preservation of affordable housing to targeted incomes.
7:55
We have a liquidity program called the Community Development Advance, which supports economic development and affordable housing and mixed-use initiatives.
8:05
And then we offer three different down payment assistance programs, each targeted to a different demographic.
8:11
So the equity builder program, again, down payment and closing cost assistance, that people with incomes are below 80% of the AMI.
8:19
Housing our workforce is targeted to individuals with incomes above 80%, up to 120% of the area median income.
8:28
And then we have a special purpose program called Lift Up Home Ownership, which targets assistance to people of color as defined by the bank's written plan.
8:38
And so those are our three DPA programs.
8:41
And then we have a small business lending program called Jobs for New England, which provides subsidized lending to our members who are engaged in small business lending.
8:51
So a really quick overview of those programs.
8:53
We thought it was important to kind of give you a kind of a perspective of everything that we do in the housing department.
8:59
And now we're gonna delve into exactly what this new program is about.
9:04
So this is our CDFI Advance Pilot Program.
9:07
​And it really stems from a couple of really important conversations that were happening throughout the system.
9:15
Historically, it's been difficult for non-depository CDFIs to obtain membership of the banks, the federal banks in general, just because of the way that was structured in the types of collateral that we accept as part of issuing what we call an advance to our members.
9:31
And so this CDFI Advance pilot program is really a response to helping non-depository CDFIs gain access to low cost liquidity so that you can continue to meet the needs of the lending in your community.
9:47
In addition to that, our regulator, the FHFA, conducted a report called FHLBank System at 100, which really looked at a variety of things around the federal bank system in general, but there was a specific conversation about CDFIs, particularly the important role that you play in affordable housing and economic development, and it went further to say that we as a system as a bank should be thinking about different ways of partnering with CDFIs because we have a common mission in really supporting affordable housing and economic development in underserved communities.
10:24
And so that was a driving force as well in terms of developing this program.10:29And then on March 6th we held earlier this year a CDFI workshop which really focused on hearing from the non-depository CDFIs about what some of the challenges are that you're experiencing in today's market.
10:44
And we heard a couple of different things. We heard that interest rates were really high.10:50And then in order for you to make loans feasible to your … beneficiaries, you needed lower cost funding.
10:57
The second thing that we heard was that lots of you have relationships with banks and credit unions, our member financial institutions and thought there was a way of partnering to be able to get some low-cost liquidity.
11:11
And so we heard those two things and we thought about ways in which we could support the industry and hence we came up with this discounted advanced program that you're gonna hear more about today.
11:24
So with that, as an underpinning of what we're gonna talk about, I'm gonna turn it over to Kathleen Amonte who's gonna take us into the program details.
11:33
So over to you, Kathleen.
11:35
Thanks, Ken.
11:36
Good morning, everyone.
11:38
So the objectives of this program is to, as Ken said, you already have some relationships, the CDFIs and the members have some ongoing relationships.
11:46
So we want to facilitate this partnership between our member financial institution and a certified non-depository CDFI, and provide low cost enterprise level funding to the CDFIs that will enhance their ability to directly lend invest in affordable home mortgages, the development of affordable housing, home improvement loans, supporting small businesses, and also commercial real estate.
12:17
So to be eligible for the program the CDFI needs to be New England based and certified and we're using the CDFI fund list as our certified CDFIs and the that is provided must serve at least one targeted market, as defined as CDFI fund, the investment area, a low-income targeted population, or other targeted population.
12:45
And furthermore that funding is going to go to support, as I mentioned before, development of affordable housing, creating jobs, growing small businesses, or expanding facilities and communities that are distressed throughout New England. So for the advance, this program has been backed by $5 million in subsidy.
13:09
That's the commitment that has been made by the bank.
13:11
These awards are going to be advance-based awards, meaning it's going to be based on the amount of the principal of the advance that you're coming in for.
13:21
The minimum advance is going to be $100,000 for the member and sponsor.
13:28
We are going to tier the caps for the members, the CDFIs, and the states.
13:36
And we'll be going into some more information on that for you.
13:39
We're just trying to level set and make sure that, you know, some of the smaller states have a bite of the apple.
13:45
So we'll go into more specifics on that going forward.
13:48
But this is going to be a 0% interest rate on a five-year Classic Advance to the members.
13:54
So we're going to lend to our members at 0% so they can pass on the benefit to the CDFIs.
14:01
We do want you to know that advances once approved are subject to rate shock at time of disbursement.
14:07
So you'll have a pool of subsidies set aside based on the rate on the day that you apply and we will check rates on the day of disbursement.
14:17
So just to let you know that you know if the rates go up we'll be having a conversation but just to let you know that we'll be putting that pocket of money aside for you and the day of disbursement we will actually set the rate as far as how much subsidy is being put going into that advance.
14:36
Funding is available on a first-come first-serve basis which we do with all of our programs or other programs that have.
14:45
We just want you to know that this is part of the reason that we did a state allocation just so that everybody has a chance, every state has a chance to come in and get some benefit from this program.
14:58
We are capping the spread from the members to the CDFIs at 300 basis points so that to further, you know, enhance the benefit to the CDFI.
15:10
Now the website will be open today to start taking some draft applications, but the funding release is not until September 16th.
15:18
So you'll have to come back in on September 16th and actually submit your application on that day.
15:29
So again, as I mentioned before, first come first serve, the portal will be opening today for draft applications.
15:37
​And the funding release is at 9 a.m. on September 16th.
15:41
So from September 16th to October 15th, we're putting a cap per member and per CDFI at $1 million.
15:51
So a CDFI can come in and take a million or they can work with two members and take 500,000.
15:58
But each member for those first 30 days will be capped at 1 million.
16:04
And then we will up that.
16:07
We are on October 16th, we'll remove the state allocation and we'll increase that cap per CDFI member to two million dollars.
16:18
And the funding that was put aside for states, if not used, will go into the general poll for anyone to be able to pull from.
16:25
And then on November 13th we'll remove the caps.
16:29
We really do want to get this money out so that it's beneficial to the communities in which you serve, but we want to give everybody a chance to get in and use the program.
16:39
So we've this tiered cap system to try to facilitate that a little bit better.
16:45
And I'm going to turn this presentation over to Mike Pingpank right now and he's going to go further into the allocation by state. All right, thank you Kathleen.
16:55
So as Kathleen mentioned, we're expecting this money to be in high demand and in keeping with those of you that are familiar with the Jobs for New England program, we do have this going out as a first-come first-serve basis, and what we'd like to do is give everybody a chance.
17:14
And so we've divided up the funding pool for the initial drop based on a per-capita distribution roughly through all the New England states, and this will be in play for the first 30 days.
17:31
So, you know, depending on the address of the CDFI, that's how – that's the state bucket that they will fall in.
17:38
We know that, you know, there are some that cross state lines, so we're going to be basing it on where the CDFI is located, not the member.
17:48
And this will be the cap that's in play in addition to the per member and per CDFI caps that will be used throughout the round.
18:00
So for example, you know, Connecticut, we're going to have $5 million, Massachusetts - $10 million, and then the other four states will get $2.5 million.
18:07
Dollars set aside for them in the first 30 days, and then, as Kathleen mentioned, after that, everything will go to the general pool.
18:154
What we are doing is holding back some of our funding to ensure that we have a little bit of a buffer to hopefully guard against issues of rate shock, at least in the early days of the program.
18:32
We might run into that if we get some applications later in the year where there's just simply not enough funding left to cover any rate shock, but we can address that on a case-by-case basis as we move forward.
18:48
But again, this is a program unlike JNE, which is a subsidy-based award, this is actually an advance-based award.
18:56
So members will be applying on behalf of the CDFIs.
19:02
The members will, for example, put in a request for a million dollars for a CDFI.
19:09
The application will take all of about three minutes to do.
19:13
The member will draw down the funds from us at 0% and add a spread of up to 300 basis points and make a loan to the CDFI for five years at whatever that spread is, up to 300 on the enterprise level and then the CDFI will take those funds and use them for one of the eligible activities that Kathleen mentioned.
19:41
Next slide, please. So the process for doing this, it's pretty straightforward. We've tried to make this as quick and easy as possible.
19:53
As I mentioned, it's only going to take you about three minutes to do an application on the member side.
20:00
We do base everything through our community lending portal, so if you do not have a user ID, please go into our website and request one now.
20:10
This is for the members.
20:11
The CDFIs do not need to have access to the portal.
20:16
All of our application system is member-facing.
20:22
The member will have the relationship with the CDFI, but then the member will be applying through our portal.
20:30
So this user ID is really only applicable to the members who will be submitting the application.
20:42
The user IDs are manual approval on our end, but we should be able to get those in a day or two for you once it's submitted.
20:49
Funding is a conditional reservation only.
20:52
What we mean by that is you'll put in a request for an advance, and at its core, it's a subsidy-based program, a subsidy-backed program.
21:03
We're going to be using that $5 million that Kathleen mentioned to create a 0% rate to the member.
21:10
The members will not be taking any subsidy from us.
21:14
What you're going to be taking is a five-year Classic Advance at 0% based on the advance that you've requested.
21:25
And the hope is that there won't be issues of rate shock with rates going up and us not being able to create that 0% advance for the full amount.
21:34
But there is that potential, which is why we say it's a conditional reservation only.
21:39
Disbursement is requested within 60 days of award.
21:47
We know it on the slide here that it's through the portal.
21:49
It's actually the disbursement is gonna be called into our funding desk.
21:52
So we'll just have to edit that one there.
21:55
So you'll have an authorized borrower call our funding desk within 60 days of award, and you'll be able to take down those funds.
22:03
From there, the member will pass the funds to the CDFI within 30 days of disbursement.
22:08
For those of you, again, familiar with JNE, it's the exact same process.
22:13
You take down the funds from us, and you pass them along to your borrower.
22:19
At the end of that 30 days, we'd ask you to submit the first of two reports.
22:27
The first report is simply uploading confirmation of that loan that the member made to the CDFI, showing the spread on the deal, showing the full amount of the principal that you took from us getting passed through to the CDFI for five years.
22:44
And that's the extent of the report.
22:47
The second report is going to be due within 180 days of disbursement.
22:51
And this is actually where we get to the heart of the use of funds.
22:55
The CDFI will fill out a very basic Excel spreadsheet with a listing of the loans that they've made and a few check boxes about how those loans fit into our eligibility criteria.
23:11
They'll submit that list to the member who will then pass it along to us.
23:16
So that's within 180 days the borrower has to actually use the funds.
23:22
So, it's really very basic, name and address, use of funds, the amount of funds dispersed.
23:28
What we need to do with this reporting is we want to track not only how the funds were used and how they were put out into the community, but also we do need to do an accounting of how much – of how the funds were actually – were used.
23:50
We need to ensure that 100% of the funds pass through to the CDFI, and then on the next step that 100% of those funds are loaned out.
24:02
If we do run into a situation of the funds not being able to be lent by the CDFI, then we can discuss a prepayment on those.
24:13
And that is the short and long of the program.
24:18
It's designed to be as simple as it sounds.
24:21
The member is going to apply to us on September 16th.
24:25
You can draft your applications now.
24:27
Go in there exactly at 9 a.m. on the 16th.
24:32
We're going to drop $25 million into the pool.
24:38
The program is set that the only option to take is a five-year advance at 0% from us, a Classic Advance.
24:47
Then the member will make a matching loan to the CDFI at the enterprise level of up to 3% for five years again.
24:58
And the CDFI can take those funds and make their end user loans that follow our eligibility criteria which basically matches what the CDFI fund uses as well.
25:14
And so with that, that's the short and long of our presentation, but I definitely see a bunch of questions in here.
25:22
We are recording this webinar, so those of you who do not want to have your voice recorded and posted on our website, feel free to type in your questions.
25:35
But if that doesn't bother you, feel free to raise your hand and we'll open up your mic.
25:40
And I do want to let you know that I will send you the presentation.
25:45
I just want to edit it for that advanced calling the desk.
25:49
I just want to make sure that it's clear before I send that out.
25:52
So I will send the webinar out to you today. As I said, it is being recorded. It will be available.
25:59
It just it will be available today. But getting into some of our questions here.
26:07
Can a CDFI member of FHLB access the program directly?
26:14
You want me to take that, Kathleen?
26:16
Sure.
26:18
So the answer is yes.
26:21
If you are fortunate to be a member in a non-depository CDFI, you don't have the additional intermediary of the member having to pass the funding through.
26:31
So the answer is yes.
26:35
Of course, you know, with that, the member CDFI would be subject to the regular caps and borrowing requirements to take down the funds from us, which is kind of the challenge that we've had with CDFIs in the past of taking the funds directly from us.
27:07
So a similar question.
27:08
So a non-depository CDFI still cannot be a member and therefore must co-apply with the bank member. That's correct.
27:14
The only access to the funding is through our membership as these programs are a benefit of the financial institution’s membership here at the bank.
27:25
Kathleen, let me just add a little color to that.
27:28
So it's not that non-depository CDFIs cannot be members of the bank, because they canbe.
27:34
There is a credit and underwriting process for any institution that wants to be a member.
27:41
Historically, it's been difficult for non-depository CDFIs to become a member.
27:46
This is one attempt to give you access to low cost liquidity, but the bank also recognizes that there are other ways in which we can enhance your ability, and there are internal conversations about some of those other ways of giving you access through membership, and so just stay tuned for that, but this really is kind of a bridge to get you to understanding in taking down liquidity through one of our members.
28:15
So I just wanted to make sure that it's not that you can't apply for membership because you can, it's just that the credit and underwriting of non-depository CDFIs is done differently than, say, a typical depository institution, and there were certain barriers it need to be overcome in order to do that and requirements.
28:36
So that's all.
28:39
Next question is, does FHLB Boston require the advance to be backed by collateral?28:43And the answer is yes.
28:44
Every member that takes down any Classic Advances here at the bank, the CDFI Advance is going to follow the exact same rules.
28:51
So there are prepayment penalties, and all FHLB Boston advances are backed by collateral from the member.
29:01
The next question is, how do we know if CDFI is a non-depository CDFI?
29:07
We're utilizing the CDFI fund list of approved CDFIs.
29:14
I believe, you know, as a member, you would have that conversation with the organization to find out what their status is.
29:24
You know we know that right now there's a big recertification process going with the U.S. Treasury and the CDFI fund.
29:33
So when a member submits the application into our system they're going to be identifying the non-depository CDFI that they're working with And so we'll cross-reference that non-depository CDFI with the CDFI fund list.
29:54
Why is the funding limited to five years?
29:56
If a CDFI seeks to deploy five-year or longer loans and several months go by before all deployed, that doesn't align with the end borrower term.
30:07
Yeah, I think it's a good question.
30:10
For us, this is a pilot program.
30:12
​And in our sort of discovery phase of researching this product, we heard that five years was something that was reasonable.
30:23
I can acknowledge, I do acknowledge that CDFIs are often mismatched in terms of the assets and liabilities.
30:31
You want to lend long, but a lot of the money comes in short.
30:35
We heard that this five-year tenor was a good place to start, and we also heard from the is that this is something that was of interest to them to be sort of shorter term on some of these lending and investment.
30:50
So I think there's an opportunity as we think about evolving this program going forward.
30:57
Again, this is a pilot program.
30:59
So part of this is to understand some of the other ways in which we might be able to enhance it in the future.
31:07
So five years is what we heard, is what we're going out with now.
31:10
We acknowledge that, you know, they don't necessarily match exactly what you do on the lending side.
31:17
But, you know, I guess the other thought is that maybe you're using other funds along with these funds to do some of the deals that you're engaged in.
31:26
And one thing to add to that, that if a member and a CDFI do have a specific project that might be eligible for another one of our programs specifically like JNE, you can apply to JNE for that specific project and still get that funding to the CDFI.
31:46
And that's something that we could work with you on.
31:50
If doing the five-year funding to the enterprise pool at the CDFI isn't gonna be an exact match with what you need.
31:59
Right, just to elaborate.
32:00
And the JNE funding is dropping again next week.
32:03
There'll be more funding available on JNE next week.
32:07
Yeah, so, I mean, theoretically, you know, you could take, you know, what we're concerned about, what we wanna make sure we see is that if a member takes down a million-dollar advance, that that a million-dollar advance makes its way to your balance sheet as a CDFI.
32:22
How you then take that one million dollars and apply it to different lending facilities for different clients is really up to you.
32:30
But at the end of the day, We're going to ask you to demonstrate via this report that our one million dollars was deployed, the low-cost liquidity, to X number of loans that you made to X number of individuals or entities.
32:45
So you can take part of our money and use it in conjunction with other sources of funding to make those end loans as long as you document that our money was indeed used for that eligible purpose.
33:03
All right.
33:05
Is there a limitation on CDFI spread on the funds?
33:10
The only limitation we're putting on the funds is from our member institution to the CDFI at 300 basis points.
33:18
We are not drilling down that deep to go to be specific about terms at the CDFI
33:25
We'll just let you do what you would normally do for any projects.
33:30
Yeah, let me elaborate on that one too, Kathleen, if I could.
33:34
Part of what we heard in our convening of about 20 different non-depository CDFIs throughout New England is that their cost of funding was too high and that they were unable to make loans at reasonable rates to their borrowers.
33:48
And so we are providing that lower cost liquidity so you can make reasonably price loans to your entity.
33:57
So what we're saying, while we don't explicitly say you have to cap your spread, the assumption is that you're going to charge whatever your normal spread would be for that kind of loan based on term and risk.
34:12
If we look at a particular application and we see that the spread is … or extremely high, we'll question that, in all honesty, because the goal of this money is low-cost liquidity to you so that you can provide affordable rates to your consumers.
34:3
1If it looks like it's out of whack or too high, then we're gonna certainly question that spread
.34:38
Even though it's not explicitly stated, that is part of what we're gonna do as part of our review.
34:43
And we assume that you're gonna add whatever your typical spread would be.34:49And because of the work that you're in, it wouldn't be, you know, one that is out of bounds, so to speak.
34:56
Thanks, Ken.
34:58
Will the loan to the CDFI be a term loan with no P &I payments?
35:02
So, these are classic advances.
35:05
So, yes, they are, they'll follow the same rules for whenever you take down the classic advance.
35:12
It's just, it's going out to you at zero.
35:14
Yeah, so it's an interest-only, you know, interest-only monthly with principal payable upon maturity on those classic advances.
35:26
As regional CDFI, can we deploy in target market deals anywhere in New England or only in the state that we are addressed in? So this is fine, yeah, okay.
35:39
It's fine if you want to cross state lines.
35:42
We're going to be basing that state eligibility or the state pool based on your location, but as long as the end user is within New England, that's the only thing we truly care about.
35:55
If you're based in Massachusetts but you do work in Connecticut and Vermont, that's totally fine.
36:02
Again, we're just going to be looking at the location of the CDFI for that initial eligibility and then of the end borrower for that follow-up reporting.
36:16
So as long as it's in New England, that's great. All right.
36:21
Our next question is, who retains credit risk with the CDFI, the FHLB or the FHLB member depository? The member will be retaining the credit risk of the CDFI.
36:36
Does the CDFI...
36:37
Sorry, just we're looking to harness those, you know, the relationship that the members have with the CDFI, and we acknowledge that there is some risk, and that's why we're intentionally silent on any sort of underwriting requirements or anything like that for what the member may be willing to tolerate with their loan to the CDFI.
37:03
but this is not a loan guarantee program.
37:06
We're simply selling it to the member at 0% to allow you to then make your own loan to the CDFI.
37:18
Does the CDFI need to provide reporting on how they use these funds?
37:22
Yes.
37:23
The member is going to have to provide us within 30 days the note showing us that they deployed the funds to the CDFI at 0%, no more, excuse me, at no more than 300 basis points.
37:33
And then within 180 days the CDFI is going to complete a spreadsheet that will be sent to them by the member and they will put in there you know the beneficiary the address what the funds were used for so yes there is some reporting but it's pretty light lifting we just want to know what the funds were for, who received the funds, and just simple details like that.
38:05
For loans from members to CDFIs, do we use the member's standard loan docs and underwriting or is there guidance or templates for different docs or underwriting?
38:14
The member is going to use their own standard loan docs and underwriting.
38:18
We're not providing any templates for that.
38:21
We're just going to ask that the member provide us back their note to demonstrate the funds have been sent to CDFI.
38:29
If the funds deployed by the CDFI are repaid before the end of the five-year term, do any requirements apply to redeployment of the funds?
38:40
No, we do not have a redeployment requirement on the funds.38:47Just to have a converse, make sure you have a conversation with the member that the member does, if you wanted to commit and prepay your loan, it is 0%.
38:56
There really wouldn't be an impact, but there are prepayment penalties.
38:59
So just have a conversation with your member just to make sure if you're gonna choose to prepay your funding early prior to the five years.
39:10
Kathleen, can you read the question again?
39:12
It's about if they don't utilize all the funds?
39:16
If funds are paid prior to the end of the five years, is there an FHLB requirement to redeploy the funds?
39:23
And we don't have any language in our policies about redeployment.
39:27
I believe the member is redeployment, not the CDFIs.
39:29
I believe it's the CDFIs redeployment of the funds.
39:35
None of that present time, none of this present time, but I think it's an interesting thing we can think about for the future, right?
39:41
Because obviously we want to get the low-cost funding into these deals, so good question.
39:47
Is it the responsibility of the CDFI to find a member who will participate or is the CDFI assigned a member?
39:53
We are not assigning members to CDFIs.
39:56
We're hoping that you already have a relationship with a member financial institution to further this conversation.40:05If you're having trouble locating one in your area, please feel free to give us a call.
40:10
We can try to help identify for you, but the program was designed to meet a need that we were hearing from CDFIs and members that members have relationship with CDFIs and they just haven't been able to support them in the ways that they would like to.
40:28
And one related question that we've had with that too is some CDFIs have asked if they can work with multiple members and that's totally fine.
40:38
What we do want to guard against though is CDFIs shopping around essentially and kind of double booking themselves with multiple members saying, you know, asking multiple members to put in applications for a million dollars each or something like that.
40:58
If you have a member that's only able to do $100 ,000 and you want to ask for another sum of money from a different member, that's totally fine.
41:08
But our caps per CDFI and per member are in part to help spread the money around New England, but also we don't want members directly competing with each other for the same business.
41:28
So please know that we will be checking the CDFI caps as part of the application process.
41:35
Your application won't get booted out immediately if a CDFI is essentially double booked, but it is something that we will catch during the application intake process.
41:49
and we just want to caution you about that.
41:54
Yeah, let me just add one quick thing to that because I think it's an important question.
41:59
Part of the, and you notice, one of the primary objectives of this initiative is to facilitate mutual relationships and partnerships between our members and CDFIs.
42:13
So to the extent that you don't have a relationship with a CDFI or a member, it's an important actually talking point, right?
42:22
If you're a CDFI and you're looking for low-cost capital and there are a credit unit or banks in your area that you don't have a relationship with, this is an opportunity to have that conversation, right?
42:33
Because now there's a tool that allows these particular institutions to utilize to help you with, you know, this low-cost liquidity.
42:41
So I would say that it's a conversation starter and it's meant to really facilitate these kinds of partnerships to expand capital in the markets that you serve. So take it as such.
42:58
Okay, next question.
43:01
Given the short time frame for the state exclusion, is there a way to know which members in each state participated in the call today to have a sense of who is interested knowledgeable about this program.
43:15
I would have to check I'm not sure if we can send out a list of attendees on the call.
43:21
It's not something that we've done in the past.
43:23
Again, we highly suggest that you reach out to the financial institutions in which you're working with.
43:29
If they are unaware of the program, they can call Mike or Ken or I and we'd be more than happy to walk them through process.
43:37
So where this doesn't want, the funding isn't dropped until the 16th, there's still a little time to have those conversations with the members and time for us here at the bank to help get a member who maybe wasn't able to participate on this call comfortable with the parameters of the program. But again, you can reach out to us too.
43:57
Yeah, and we have the chat function Enabled right here too, so the poster if you want to post that you're looking for a member, feel free to put that in the chat and one of the members on the call could follow up with you.
44:14
Great suggestion.
44:14
I was just going to say that I think we share the list at our outreach forums all the time.
44:19
I think we'd have to sort of sanitize the list and make it presentable, but I think I don't think there's a problem with just sharing the list of attendees and the call really, you know, is against it, but we typically in all of our outreach forums do share the attendance list.
44:37
So true.
44:37
So I can send that out, clean that up and send it out with the updated presentation.
44:43
Yeah.
44:44
I think we'll be fine to do that.
44:46
There's nothing confidential in this.
44:48
This is an outreach event with basic information, so we can double check with legal, but I think We should be fine.
44:55
We'll be fine.
44:58
Am I correct in understanding that the interest rate risk means that if interest rates rise, that my allocated subsidy for my CDFI advance will not support the full principal amount of one million?45:08
So, consequently, if rates rise, my one million advance may be reduced to $950,000.
45:15
Yes.
45:16
However we are you know we've put some safeguards in to try to meet that principal amount but again it is it is a sub you know the subsidy is only going to go so far if rates do start to increase you know the value will go down obviously on the principal so just something to keep in mind once these are approved a member can come in and request them the next morning so that would limit some of that risk.
45:45
But yes, that is how it would work, similarly to how we run JNE.
45:51
Yeah, just to add to that too, I mean, it's a really good question.
45:54
I think from what we're hearing though, right, is that the Fed is going to move with rate cuts.
46:02
I think that the rate hikes are pretty much done and that the Fed is gonna start to move in the direction of potential cuts, 25, 50 basis points.
46:11
So I think the risk is moderated due to the Fed's signaling of potential rate cuts.
46:19
As Mike mentioned earlier, we do have a buffer in the background in the event that that does happen, but I think that risk is slowly but surely kind of diminishing based on sort of the Fed signaling of cutting rates.
46:33
So that's actually a good thing.
46:34
That means we actually will technically have more subsidy depending on when that happens in the program.
46:40
So just kind of keep that in mind as well.
46:45
Yeah, because after the first 30 days when the state pools are gone, you could see that the overall funding pool ticks up a bit, depending on what rates are doing in the next 30 days and how much subsidy we actually have left.
47:02
That'll determine how much funding that will get transferred over from the unused portion of the state pools plus any of that that hold back that we have we don't want to over commit and have folks in a situation of having to reduce their approved advances but we do want to make sure the money all gets out so keep an eye you know if you if your state has hit the cap check back in 30 days especially when um when that cap goes away and the uh the limits increase again Okay, really good question.
47:41
Would a member CDFI using the program directly need to have eligible collateral at the time of application or when we actually pull the advance to finance a project?
47:50
Just like any other advance you'd call from our funding desk, all advances at the Federal Home Loan Bank are collateralized, so the member would be collateralizing that advance at time of drawdown, of disbursement.
48:03
So, you don't need that application, but you do need it at the time of disbursement.
48:08
Yes.
48:11
What collateral is assumed to be offered by the CDFI?
48:15
Only the end loans?
48:17
The bank is, the Federal Home Loan Bank is not dictating the collateral between the member and the CDFI.
48:24
That's going to be based on the member's underwriting standards and their requirements.
48:27
So, that would be something that you would need to have a conversation with your lender on.
48:34
If we have multiple relationships with banks it would help to know who participated in this call showing their interest.
48:41
We're gonna I'm gonna send the list out with the slides today so you'll be able to see member institutions that did join the call but again I reiterate if someone that you work with currently was not on the call reach out to them and we in between Mike and I we can can work with them to get them the information they need to get comfortable with the program. Next question.
49:06
The advance needs to be backed with collateral, but if all the end loans aren't identified day one, so do you support the application and does the member disperse 100% on the funds on day one or is a line to draw down?
49:22
So, the advance is going to be back by the member institution's collateral here at the bank and will have to be fully collateralized at time of drawdown.
49:36
We anticipate the members providing that enterprise level fund to the CDFI immediately.
49:42
We're expecting a note for the full amount of the advance within 30 days of disbursement here at the bank.
49:48
We're not envisioning it as a line of credit.
49:57
Can a member bank make a one-year term that will automatically renew each year over the five-year term?
50:03
No, we're going to be looking for a note at 0% for five years.
50:07
It's match funding like our other programs that we offer.
50:09
So, if we're presenting you with 0% in five years, we're expecting to see a note for no more than 300 basis points for five years.
50:18
So, we do request it be match funded.
50:23
Is there a plan to make the pilot program permanent with routine funding rounds like JNE?
50:30
Yeah, I guess that's a question for me, right?
50:32
Yeah.
50:33
You know, we definitely have an ongoing commitment to supporting the CDFI community, particularly non-depository CDFIs. As I mentioned, this is a pilot this year.
50:44
What we'll do is at the end of this pilot period, we'll reevaluate the success of the program and then we'll get with our senior team and senior management and then make, along with the board, and then we'll make decisions about the future of the program.
51:00
And that's why I emphasized at the beginning it's really a pilot.
51:04
And as I'm hearing all these different questions, I've different ways already in my mind in which we could probably modify the program to be a little bit more flexible and I acknowledge that up front but this really is about getting a concept out there for you to weigh in on and attempt to utilize with the understanding that there's an opportunity to really enhance it later on down the line so great question you know we definitely want to continue supporting CDFIs we acknowledge the challenges that they face in the industry, and so that will all be factored in once we get through this initial pilot stage of the program.
51:48
The CDFI gets the advance at 3% or the member's spread.
51:52
The cost to the member is always zero.
51:55
That's correct.
51:56
The funds that we pass through from the Federal Home Loan Bank to the member are at 0%.
52:03
Regarding the five-year term, am I right to assume that the CDFI could swap in other loan capital for the FHLB capital at the end of five years.
52:17
Swapping capital.
52:20
Like essentially, like if they wanted to make a 10-year term to a borrower, you could have a note that is based on CDFI funds at a discount and then converting to another rate at the end of five years or something like that.
52:39
That would be totally fine.
52:41
And the whole point of the CDFI of this program is to get those funds into essentially a pool at the CDFI's enterprise level to merge with other sources of capital.
52:57
So it's not necessarily looking to do essentially a one-for-one all the way down to the borrower level with a matched five-year term equal to exactly what we disperse to the member.
53:14
What we're looking for is to track that, say, you took a million dollars, that a full million is deployed, but it can be mixed with other sources of capital for sure at the CDFI level.
53:31
We just don't want the member to be mixing CDFI funds with other funds that they may be, program funds with other funds that they may be lending.
53:44
So, for example, if a member draws a million dollars through the program at 0% from us, we would like to see, we would expect to see a note to the CDFI for a million.
53:55
The member could do another million at a different right if they'd like, there's no restriction on that.
54:01
They could do another 10 million if they wanted to, but we just need to see that that match goes through to the CDFI and then from there, the CDFI takes the money from their own pool to make those end loans.
54:18
And Michael, you had said that you said the question could potentially be confusing.
54:23
I just wanna make sure we answered it correctly for you.
54:26
So you had mentioned raising your hand.
54:28
if you want to raise your hand and let us know that you needed some further clarification please go ahead and do that.
54:36
​So in other words will the member be able to make an investment using this source where the investment is a one year term with automatic renewals over the five year?
54:48
No, we as I said with match funding, we expect to see a note for five years at no more than 300 basis points.
54:57
If the member loans the fund to the CDFI on an unsecured basis because they are comfortable underwriting their credit on this basis, would an assignment of the CDFI's note qualify as collateral provided by the member under this program?
55:11
No, we have certain collateral requirements here at the bank that members must meet in order to take down funding.
55:20
So, no, that would not be a qualified collateral for our loans.
55:29
Is the member's loan full recourse to FHLB or tied to the underlining and loan performance slash collateral?
55:40
Yeah, the relationship, I think you said it a few times.
55:42
I mean, we're making the loan to the member.
55:45
It's collateralized by the member.
55:47
The arrangement that the member makes between the CDFI is really an individual underwriting decision.
55:53
You can make it full recourse, you can make it non-recourse, you could set it up in a way that's conducive for your organization, but as well as the CDFI.
56:02
But it doesn't involve us because the minute you take the advance, we've already got collateral supporting the advance from us to the member.
56:12
How you arrange the backing of that loan to the CDFI in terms of collateral is really going to be on a case-by-case individual bank, individual credit union basis.
56:24
It's really based on your comfort level, your lending relationship with that particular CDFI.
56:31
If you know them well enough, you know, I've heard a question being asked earlier, you may not even get collateral because you have so much, maybe you have other relationships with them.
56:40
So that part is really gonna be up to you in terms of how you secure your obligation with the CDFI.
56:49
Ours will be secured at the very minute take down the events.
56:55
Okay, this question they're qualifying it that they realize it it's outside of our jurisdiction but is it reasonable for the loan from the depository in CDFI to count as CDFI CRA and or ECIP credit for the depository?
57:11
This person is actually coming from a CDFI depository as well and we are regularly seeking opportunities to fulfill our Yeah, so what I would say to that is that a lot of what this program does mirrors what CRA would give credit for.
57:29
We haven't had the conversation yet with our regulators about, you know, whether this would explicitly qualify for CRA.
57:38
I know that the rules were changed a couple years ago, and so we haven't had the opportunity to review this program in the context of these new rules.
57:47
But a lot of what is being done with this money, it being discounted, it being a lent into a targeted area, you know, underserved communities, serving certain beneficiaries and incomes, you know, there's a lot of correlation between what this program is and what CRA gives credit for.
58:07
We just haven't had the further conversation.
58:09
We've had these conversations with the regulators on other programs that we implement here at the bank. We just haven't done that yet.
58:16
So at some point in time in the near future, we'll be talking with our regulators about the extent to which this could qualify for CRA, but that process hasn't been done yet.
58:27
And again, you know, coming out as a pilot, we need to learn more before we actually go to the regulator and kind of get a definitive stance on this potential to qualify for CRA. But we will do it.
58:41
We will have those conversations.
58:45
There's a question here about obtaining the list, the link for the listing of the New England certified non-depository CDFIs.
58:53
I will today... I just posted it to the to the chat.58:57Perfect and what I'll do is I will send, when I send out the slides later in the attendee list, I will include that link to the CDFI fund. We have two more questions left.
59:08
They are not CDFI related. So JNE is allowed for nonprofits?
59:18
No, JNE is not allowed for nonprofits. JNE is only for for-profit businesses.
59:25
So that's, you know, another avenue for the CDFI program is to work those funds from the CDFI to a non-profit potentially.
59:37
But JNE is for-profit small businesses only.
59:45
And another JNE question.
59:48
JNE renewal is coming up soon.
59:50
Is that also going to be structured as immediate disbursement with five-year interest only?59:58
What was that?
59:59
What was the question again?
1:00:01
They're asking if JNE is gonna be structured the same with five-year interest only.
1:00:05
JNE goes, it's Classic Advances from anywhere from one to 10 years.
1:00:12
Those are, JNE goes out to the member at 0%, and it is a Classic Advance interest only, but of course, at zero, there's no interest from the member to us, and then you can structure your deal with your borrower to utilize those funds, employing your normal spread on top of the 0% JNE.
1:00:37
So typically we would see those as interest only, but sometimes they are P &I from the member to the borrower.
1:00:49
But for the member to the Home Loan Bank, its principle is just do it maturity and there's no interest.
1:00:58
And they can do other terms outside of five years.
1:01:01
Correct, yeah, the member would borrow from us anywhere from one to 10 years, but they can use those funds to create anything, pretty much anything under the sun to the borrower, provided that the math works out that the full benefit of the discounted funding is passed along to the borrower.
1:01:19
So you can create a note that may reduce your borrower's interest rate a little bit over a longer term, or you can kind of front-end load the full benefit of the subsidy, you know, like for a startup or something like that that needs a rock bottom rate for a few years, you can front end load it and then have the note automatically convert to a market rate when JNE matures, say in two years or three years or something like that.
1:01:46
Or you could, like I said, spread it out over 10 years if you'd like.
1:01:51
But JNE does allow for notes that automatically convert and for blended rates. All right.
1:01:59
And our last question is, how does a non-depository CDFI become a member on our website there is a link to become a member you can contact us directly and put you in touch with someone to discuss that that process of becoming a member here at the bank unless anyone has any questions I would like to raise their hand we've gone through the list let me see Edward you had your hand up did you want to ask a question okay I don't think so Do you want to unmute his microphone?
1:02:54
Yeah, it's not muted by me at this time.
1:03:01
Ed, if you're still there and you have a question, you can go right ahead and type it into the chat.
1:03:05
No, no, I think you can hear me now.
1:03:07
Thank you so much.
1:03:08
We can, thank you.
1:03:10
I want to thank Ken and the whole team here for making this presentation.
1:03:14
This is Ed Gin from New Hampshire Housing Finance Authority, and I've been working with Savvas for this whole year.
​1:03:20
So I think this is a very exciting program that's going to help affordable housing throughout our whole region.
1:03:27
And, you know, Savvas updated me about the, you know, where the discussions were of housing finance authorities can.
1:03:34
So, you know, he's been really communicative.
1:03:36
So I just want to emphasize how important this program is, not only to the CDFIs, but also the housing finance authority.
1:03:43
So if there's any way to just include us in the next round, or that would be wonderful.
1:03:50
Yeah, Ed, thank you for those comments, and Savvas and I have been talking, and, you know, definitely I think there's an opportunity, you know, that's why we came on as a pilot, but I do think there's an opportunity to incorporate the needs of the HFAs because you, too, play a critical role in affordable housing in your region, and so I know low-cost liquidity for you would be just as important in some of the initiatives that you're engaged in. So that's something we can definitely look at as we think about our re-evaluation process of this product.
1:04:26
So I really appreciate that and Savvas and I have talked about that and we're going to definitely explore that for you. So appreciate that.
1:04:34
Thanks a million.
1:04:38
Anytime. Okay. I don't see any other questions, but as always you can reach out to us.
1:04:43
We're more than happy to answer your questions.
1:04:45
You may come up with some later on after the webinar and keep a lookout for for the information that I'll be sending out later on.
1:04:52
We really appreciate your time this morning.
1:04:54
Thank you.
1:04:56
Thank you everyone.
1:04:56
These questions have been tremendously helpful as we think about the program in the future.
1:05:01
​So looking forward to seeing the activity.