WASHINGTON – Community Development CUs are calling on the Treasury Department to allow them to securitize secondary capital and a variety of loans, especially mortgages, under the government’s plan to issue as much as $3 billion in Community Development Financial Institution Bonds.
“Secondary capital is the most compelling and fruitful use for CDFI Bond proceeds,” Cliff Rosenthal, executive director of the National Federation of CDCUs, told the Treasury in a comment letter on the proposal.
“Investments of secondary capital enable credit unions not merely to fund loans, but to leverage their net worth --to expand their deposit base and generate loans for the full range of credit needs in underserved communities, including but not limited to housing, microenterprise, working capital for small businesses, education, and other essential needs of their members,” commented the CDCU leader.
The bonds, authorized by last year’s Small Business Jobs Act, would carry the wrap of the U.S. guarantee and the Treasury would issue $1 billion of bonds a year–a total of $3 billion–to be backed by assets of CDFIs still to be determined.
Credit unions have been big beneficiaries of the CDFI program which has awarded CDCUs more than $200 million in grants and loans since its inception, and provided access to $70 million in left over Troubled Asset Relief Program funds last year.
Mainstream credit unions are barred from accepting and counting secondary capital as net worth under NCUA’s prompt corrective action rules, but 1,100 credit unions NCUA has qualified as low income may count secondary capital as net worth.
“The CDFI Bond Guarantee program as outlined in the legislation offers the prospect of access to long-term capital a t advantageous rates,” wrote Joseph Thomas, president of Fairfax County FCU, one of 220 CDCUs eligible for the Treasury program. “If it is properly structured and implemented, it has the potential to stabilize and support the growth of financial institutions, such as FCFCU, that specializes in serving low- and moderate-income households who are suffering disproportionately from the current recession.”
“Eligible bond proceeds,” David Prosser, head of community development for Freedom First FCU, “must include all loan and investment types and financing segments.” He suggested the range of financing should include refinancing, capitalization of a revolving loan fund, loans to and purchase loans from other CDFIs, loan loss reserves, debt service reserves and investments of regulatory capital.
CUNA suggested that CDCUs should be eligible for a guarantee of the Treasury bonds of notes they may issue, including secondary capital certificates. Secondary capital, said CUNA in its comment letter, would assist significantly more CDCUs in their mission by enabling the credit unions to leverage their net worth to add deposits and generate loans for a range of credit needs in low-income communities.
The Federation’s Rosenthal urged that the CDFI fund consult with NCUA “to ensure that secondary capital investments under the CDFI Bond program conform, or can be conformed, to NCUA regulations.”
Most of the credit union letters were identical form letters.
