December 19, 2007
Buying and Selling Loans for the Good of Communities
by Anne Moore Odell
The Community Reinvestment Fund USA offers investors a way to help keep capital flowing into
community development organizations.
Started in 1988, the Minneapolis-headquartered Community Reinvestment Fund USA (CRF) works to create liquidity for the community development
finance system. It buys loans from public and private non-profits and governmental community
development organizations and pools the loans together into asset-backed debt securities.
CRF then makes the securities available to institutional investors. Since its inception,
it has enabled organizations to lend almost $1 billion dollars to low-income communities.
This secondary market for community and economic development loans makes it possible for the
original community development lending organizations to collect almost all of the moneys owed them
much more quickly than if they were to wait for the loans to be repaid. Lenders are therefore able
to offer more loans to the people and communities they serve.
“We concluded our fiscal
year on June 30, 2007, with one of the strongest years in our history,” said Frank Altman,
President and CEO, CRF USA. “We exceeded many of the goals we set out to achieve. In particular, we
delivered more than $210 million to low-income communities using the power of the secondary market
as a sustainable resource to rebuild communities. This was the highest volume in our history. In
the face of the early signs of the melt-down of the credit markets, we ended the year with in
increase in net assets of more than $1 million,” added Altman.
Through its partnerships
with community development organizations, CRF has served over 100,000 families, resulting in 32,789
jobs created and retained, 15,771 affordable housing units and funding for 457 minority- and
CRF works with community development lenders when buying the
loans, and either services the loans, or the community development organizations themselves can
continue to service the loans. CRF is sensitive to the borrowers of the loans they service, with
staff trained to recognize issues around first time borrowers. CRF also can help with training and
CRF is aware that the borrowing to invest or “leveraging” has been
used in the past unethically. However, it explains where all its funding comes from and how its
loans are repaid. CRF allocated 2% of a debt security as protect against possible losses, and
typically this 2% is from charitable grants. A little less than 20% of the funding is from “social
investors” who are repaid on different terms than people looking for market-rate investments. These
equity-equivalent investments (EQ2) are often repaid at a lower interest rate or on a different
repayment schedule. The majority of the funding (80%) is from institutional investors who get a
market rate of return.
Social investments enable CRF to attract more market-rate capital,
which in turn, creates more funding for economic development Altman explained. Social investors
financial returns range from 1% to 4%, depending on the nature of their investments.
addition, CRF has recently created a Program Related Investment (PRI) for institutional investors
and high-net-worth individuals with qualified investment advisors. It is structured like a
traditional PRI with a below market rate of return. Investors receive updates to how the loan
moneys are spent. The minimum investment for the PRI is $500,000, with interest rates being
“In our 19 year history, CRF has pumped nearly $1 billion into low and
moderate income communities and it has never missed a payment to its investors,” explained Altman.
"As importantly, investors should expect superb social impacts These funds have been used to create
affordable housing, schools and multi use facilities, support small businesses and build the
capacity of community lenders to utilize the secondary markets to bring more capital to underserved
While social investors receive an economic return that is below market,
the notes that CRF issues to institutional investors are rated by Standard & Poor’s and carry
interest rates commensurate with their risk. Additionally, banks receive Community Reinvestment
Act (CRA) Credits for making community investments in CRF.
CRF has made loans in rural
and urban communities in 46 states and investors can often chose a specific geographical location
to invest in.
“We monitor our performance monthly and report on our performance quarterly
against the goal,” said Altman. “Investors receive quarterly updates on our progress. Over CRF’s
history, we have delivered more loans in targeted geographies than our investors have required.”
CRF was recently awarded a Social Capital award by Fast Company Magazine and Monitor Group. The annual awards are given to
non-profits that use “the tools of business to solve the world’s most pressing problems.” The
January 2008 edition of Fast Company Magazine will feature CRF and other non-profits acknowledged
by the award.
“CRF is one of the nation’s largest community development entities, and has
been a true leader in the secondary market for community development loans,” Tammy Hobbs Miracky,
Senior Consultant for the Monitor Institute, told SocialFunds.com. “The scale of CRF’s impact is
large, which has freed significant capital that can be reinvested in community development
“I am thrilled we have been recognized with a Social Capitalist award,” said
Altman. “We always have sought to harness the financial clout of Wall Street to benefit the small
businesses of Main Street, so this award is particularly meaningful. Being recognized as a social
capitalist pioneer urges us all to redouble our efforts to drive community impact in economically
underserved areas throughout the country.”