If you live, work or are looking to do business in a low-income or financially underserved area and need a mortgage or small business loan, your local community development bank or credit union may have some cash to lend you.
That's because the U.S. Treasury will use up to $1 billion from the federal bank bailout to fund lending in underserved and minority areas through community banks, Donna J. Gambrell, director of the Treasury's Community Development Financial Institutions Fund, told Aol. Black Voices in an interview.
"These are community development financial institutions that have been in low-income communities for many years. They have made a choice to serve those communities. They finance affordable housing, provide affordable mortgage products, have anti-predatory lending programs in place, foreclosure mitigation, credit counseling and they create and finance and develop small businesses." Gambrell said.
"These institutions did not cause the economic crisis. They have been lending all along. This just gives them the funding to lend some more," she added.
Under the program, banks and financial institutions that target more than 60 percent of their lending activities in low-income and underserved communities can qualify to borrow money at a 2 percent rate of interest, less than half of the 5 percent that larger banks paid to access federal relief money. The community development financial institutions will also have more time, eight years as opposed to five, to utilize the money at current interest rates. For the first time, credit unions would also be able to access the money.
President Barack Obama and Treasury Secretary Timothy Geithner have been criticized for focusing on big Wall Street banks.But under President Obama, Gambrell said her agency's budget has risen to unprecedented levels and this program shows Geithner's interest in community-based lending and development.
"He's been a very strong advocate for these programs and understands the uniqueness of community development, financial institutions and the breadth and depth of lending. In many cases, they are able to go beyond what larger banks have been able to do," said Gambrell.
After first announcing the program in October, Gambrell said the Obama administration worked with the community institutions to fine-tune the requirements. For example, the amount of funding available was increased to 5 percent, up from 2 percent of risked weighted assets. Banks that might not have qualified are now allowed to participate in the program if they find matching private capital.
"Because of their unique type lending, the contraction of credit, less support from big financial institutions and philanthropic contributions going down, they needed more flexible terms. We were able to go back and make sure the final terms were more acceptable," said Gambrell.
The money can have a big impact. Unlike other treasury lending, the money goes directly to the institutions who can then make that money available to the public. For every dollar that community development financial institutions lend, it produces about $13 in economic value.
Bill Dana, president and CEO of the Central Bank of Kansas City, told Aol. Black Voices that community development financial institutions, such as his, were hard hit by the financial crisis. He called the financing terms highly attractive.
"We have a difficult time because we work with people in the lowest income strata, and they are the first to be laid off and the last to be hired during an economic downturn. The people they trade with are the merchants that have relationships with our institutions. One serves the other, and we serve both," said Dana. "This helps recognize that significant piece of the economic relationship."
In many communities, institutions like the Central Bank of Kansas City are one of the few places where people can access the capital needed to purchase or repair a home or start a business.
"We are in some ways the last stop and the only hope in responsible lending. There are plenty of predators to provide high-rate financing, but we are FDIC insured banks who work with communities to build those communities," Dana said.
Gambrell said that institutions like Dana's help give communities an opportunity to flourish:
"What we are looking at is those community development financial institutions that will support minority businesses, hire workers, contribute to the ongoing recovery, which is what President Obama wants to do," said Gambrell. "They want to address those institutions that have always been doing it to make sure they continue doing it in an effective way."
To find a community development financial institution in your area, go here.
