One of the quieter successes in the banking industry is its deepening involvement in affordable housing.

In recent years, many private lenders have created loan consortiums to play an expanding role in a field traditionally dominated by government. By pooling resources and reducing risks typically associated with affordable- housing investment, lending institutions throughout the country - from community banks to major institutions - are finding affordable housing to be an attractive investment.

In general, the successes have been remarkable, demonstrating that it is possible to turn a profit and realize important social objectives at the same time.

Government subsidies have long been the mainstay of affordable-housing finance, but Congress has abolished many major housing programs and likely will continue to scrap others, some of which have been in place since the 1960s and even the 1930s. Private lenders are stepping in to fill the gap.

The affordable-housing loan consortium is the principal vehicle that has so far yielded the most promising results. Usually, loan consortiums are structured as discrete, nonprofit organizations, capitalized by banks to facilitate private lending for community needs. By concentrating resources to create organizations staffed by specialists who know how to combine public and private resources to structure financially sound, viable affordable housing projects, banks and other financial institutions are reducing the risks of loans they might not otherwise have made.

The first of these consortiums was created in California about 1970, and growth in the field has been particularly brisk in the 1990s. There were about 15 consortiums in 1991; the number more than doubled by mid-1995. Now, there are loan consortiums in 22 states and the District of Columbia, with activity concentrated in California, Florida, New York, and Massachusetts.

In New England the lead has been taken by the Massachusetts Housing Investment Corp., a loan consortium started by the Massachusetts Bankers Association in 1990 and now regarded as one of the most successful organizations of its kind in the country. Funded by the state's largest banks, including Bank of Boston and State Street Bank and Trust Co., as well as smaller institutions such as Hyde Park Savings and the Telephone Workers Co-operative Bank, it provides funds for the rehabilitation and construction of affordable housing - primarily multifamily rental properties - throughout the state.

What makes the Massachusetts consortium interesting as a national model is its successful experience in a demanding economic environment and its ability to create innovative vehicles for investment. While most consortiums provide only debt financing, the Massachusetts consortium has an equity fund to complement its debt program. In 1994 the organization established a wholly owned, for-profit subsidiary - the Massachusetts Housing Equity Fund - to expand its base of investors to include corporate entities and to stimulate equity investment through use of federal low- income-housing tax credits.

Like many bank consortiums, the one in Massachusetts is governed by a board of directors composed of both banks and community groups. Its chairman, Guilliaem Aertsen, a senior executive at Bank of Boston, has been involved in a hands-on way with the organization since its inception, participating in virtually all meetings, committees, and decisions. The Massachusetts consortium has a staff of 17 and an annual operating budget of about $2 million.

What accounts for the proliferation of these organizations - and what generally makes them attractive to banks - is that above and beyond helping participants comply with the federal Community Reinvestment Act, the organizations enable lenders to invest in communities they would not ordinarily reach, to tap into new markets, and to develop profitable new lines of business.

According to David Schon, associate director of the National Association of Affordable Housing Lenders, "CRA no doubt is one factor in getting banks to the table. But it is equally clear that banks see the value beyond CRA credits."

Adds Judy Reed of the Washington Community Reinvestment Association in Seattle, "The real advantage is that a consortium lets small banks and niche players participate in and profit by a very specialized type of lending. The small banks are able to draw on local banks' market knowledge and thereby increase their geographic reach."

Ms. Addis is vice president and a principal with the Boston consulting firm.

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