Stuart Boesky, president and chief executive of Charter Municipal Mortgage Acceptance Co., says he has a way for banks to meet their Community Reinvestment Act investment budgets by yearend.

The New York company, also known as CharterMac, which invests in tax-exempt bonds to finance affordable rental housing, is marketing shares of its convertible preferred stock to banks as a way to meet CRA requirements and diversify CRA-related investments. Just as common stock does, the preferred shares pay quarterly dividends and may appreciate in value, but they also offer CRA credit.

CharterMac completed its first issue of convertible CRA preferred shares in May for $27.5 million and hopes to issue another $50 million by yearend.

The Community Reinvestment Act requires banks to lend and otherwise invest in the communities where they accept deposits. One way banks can fulfill this requirement is by financing affordable rental housing.

CharterMac's preferred stock is backed by a portfolio of 85 housing development bonds, the proceeds of which were used to finance affordable-housing projects in 17 states and the District of Columbia. With these bonds, CharterMac has $650 million of assets available for allocation to bank investors.

Banks may choose which property will correspond with their investments, based on where they need to invest for CRA credit. CharterMac's portfolio is sufficiently varied geographically that most banks can find something in their areas, the company said.

Three banking companies invested in the May deal, Mr. Boesky said: First Union Corp. of Charlotte, N.C., Imperial Bancorp of Los Angeles, and an investment bank he declined to name.

Mindy Murphy, a CRA compliance officer at Imperial, said the shares are "a good investment [with] a good return." Investing in them not only makes good business sense but also "assists us in complying with CRA," she said.

It would be wise for CharterMac to bring another offering to market before yearend, Ms. Murphy said. As the year winds down, banks may realize that their CRA investments are falling short of what they had planned, she said.

Mr. Boesky said banks typically meet their CRA goals for housing through heavy equity investments in small numbers of properties that get federal tax credits. The downside of that strategy is that, if even one project performs badly, banks face a higher risk of loss, he said.

The primary advantage of getting CRA credits through CharterMac, Mr. Boesky said, is diversification of exposure. Though a bank gets CRA credits associated with specific properties, the performance of the investment is based on CharterMac's entire portfolio and thus is not tied to the fate of the property or properties that the bank has selected, he said.

The CRA preferred stock is not traded on the open market, but banks can convert their holdings at any time into CharterMac common stock, which is traded on the American Stock Exchange. This lets the banks liquidate their investments after passing their CRA examinations if they choose, Mr. Boesky said.

CharterMac also gives banks full reports through the Internet on each property they have chosen, Mr. Boesky said. The reports include information on local demographics, tenants, the neighborhood, the property's performance, and how much of any particular CharterMac asset has been allocated to that bank.

This can save banks from headaches when they report to CRA examiners, Mr. Boesky said. A problem with financing individual housing projects, he said, is that developers are often slow to provide documentation and banks typically must scramble to put together the paperwork, he said.

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