Michael D. Lappin is president and chief executive of the not-for-profit Community Preservation Corp., which he says is the nation's biggest building operation for low cost.
The organization, which is based in New York City, was founded in 1974 and currently is sponsored by 50 banks and insurance companies.
The institution hasn't suffered a loss, and it has helped to rehabilitate and build 34,000 units of housing with more than $1 billion in public and private investment. It also is managing a loan consortium of 80 banks in upstate New York.
Mr. Lappin visited the American Banker bureau last week while in Washington trying to persuade agencies such as Fannie Mae and Freddie Mac to guarantee the loans underwritten by operation and others like it.
Q.: You have quite a few foreign banks as sponsors, don't you?
LAPPIN: That's a recent development. We opened up membership about four or five years ago.
Q.: How does one join up?
LAPPIN: You have to make a contribution and then you have to participate in our credit facilities -- a $144 million construction credit facility and a permanent credit facility.
The minimum contribution to is $15,000, plus $450,000 of each line of credit. Chemical Bank is our largest investor. They provide about $30 million.
Q.: Who are your customers?
LAPPIN: Small borrowers, lots of recent immigrants who own, say, a 40-unit dilapidated building in the South Bronx and want to renovate it. We not only provide credit, but help obtain timely approval by the building departments and other help.
Q.: That sounds like a lot of work. How many people do you have working for you?
LAPPIN: Forty. In many cases, public subsidies are available for the borrower. and we try to link these subsidies when proper.
There also are various tax abatements. and we understand them and weave them into the underwritting. We also do all the negotiating with the various public agencies that administer these diverse programs.
What we've done -- and this is key to our success -- has been to create a one-stop shop, where we work with the government and try to work many of these things out in advance.
For example, there is a program where the city will put in below-market money -- in a secondary position to private money -- to fix up old apartment houses.
So rather than the owner going to the city to make a separate application. we basically handle the application for them.
And there's a single commitment where we commit our funds and the public funds at the same time. There's a single closing. And there's one engineer that approves the requisitions. The public deposits all the funds with us. And so we manage that process for the city.
Q.: What rates do you charge on the loans?
LAPPIN: Market rates. The underwriting is conventional underwriting. It's bankable underwriting. A lot of our guys [bankers] say it's the best real estate portfolio in town.
We borrow from the banks at prime and lend at prime plus two. We price long-term financing off of Ginnie Mae.
Q.: Do the banks participate because they're trying to comply with the Community Reinvestment Act?
LAPPIN: It's a reasonable way to invest. Part of the reason may be CRA. But most tell me, "do what's best for the community."
Q.: Explain the lending process.
LAPPIN: We use the $144 million line of credit for construction loans. Simultaneously, we'll do a permanent takeout. The source of that can be the banks, in which case we'll issue them a privately placed mortgage-backed security, an unrated piece. A second source used a lot now is public pension funds.
New York City and New York State, together, have committed to purchase up to $550 million of whole loans from us on a forward basis if they get the State of New York Mortgage Agency, our local credit enhancement agency, to ensure these loans, which they do very readily.
They also commit at the date of construction to lock in a rate. The rate for a project that will be completed two years from now is 820 [8.20%] or 830 for 30 years, fixed-rate paper. It's a terrific deal.
Q.: What are you asking for down here in Washington?
LAPPIN: We think there is a way of doing nationally what we're doing in New York to allow pension funds and insurance companies and large institutional investors to purchase on a forward basis.
There are other organizations like ours around the country that do an excellent job but can't get long-term holders for this paper. That's what we're asking Freddie and Fannie about.
Also, if we had Freddie and Fannie, our institutional investors would take a lower yield.