Though many banks are turning to loan consortiums as a way to meet their low-income housing obligations, coordinators of the programs say that progress is slow and not very steady.
The primary obstacle remains the lack of a secondary market for the affordable housing and business loans made through the programs, said Doris R. Schnider, president of the Community Investment Corporation of North Carolina, Raleigh.
Banks that lend independently or even through consortiums - in particular, smaller institutions - are wary about making too many low-income loans because of the high capital requirements for real estate credits.
"If the consortium could continually revolve loan funds," Ms. Schnider recently wrote in an unpublished essay, "the 24-plus [consortium] now in existence could have a very definite impact on affordable housing development across the nation."
But, she continued, the consortium and their member banks must keep most of the loans on their books, because they do not conform to the purchase standards required by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac).
Charges in Criteria Sought
"Indirectly, the lack of a functioning secondary market is contributing to the shortage of affordable housing in the nation," Ms. Schnider wrote, "as well as threatening the viability of those developments which have secured less than sustainable financing terms."
Ms. Schnider said in an interview that her North Carolina group and others are working with the mortgage agencies to try to modify some of their criteria.
Creating a liquid market for low-income housing loans would not only help banks, she said, but also attract institutional investors such as pension funds and insurance companies. That, in turn, would greatly expand funding for the housing programs.
In March, the National Bankers Association met with Fannie Mae, the first of several meetings aimed at creating a partnership with the agency.
"While progress has been made, several issues still remain an obstacle to the culmination of a mutually satisfactory product," said Ms. Schnider.
She said that pricing, risk sharing, and more flexible underwriting standards are among the major areas in which the two sides have not yet reached agreement.
The other agency, Freddie Mac, was a major source of permanent financing for mutifamily housing during the 1980s, Ms. Schnider said. But in September 1990, it suspended most of its activities because of losses suffered on its portfolio of multifamily loans.
Freddie Mac, however, recently launched a program in Chicago with Harris Trust and Savings Bank in which it committed $100 million to fund low-income mortgages. If the program is successful, Freddie Mac officials said, the project could be expanded nationwide.
Ms. Schnider's group represents 111 banks and thrifts in North Carolina, Incorporated in December 1990, it has made more than $ 10 million in loans for 11 developments, financing more than 500 units of low-income rental housing