A key question, however, concerns suggestions that something new is going on to generate keener interest from private capital market. New development banks and finance programs are being established with Empowerment Zone resources (and Enterprise Community grants) federal agency specialists (from the U.S. Department of Housing and Urban Development, the U.S. Department of Agriculture, the U.S. Department of Health and Human Services, the federal Economic Development Administration and the Treasury Department) are focusing attention on the provision of flexible resources to facilitate post-loan managerial assistance to economic development ventures receiving loans from public and private sector vehicles. These same agencies also have become quite cognizant of the need to assist revitalizing communities in improving the management of bank transaction costs. Credit enhancements, while historically available to nurture community development lending activities by banks, are increasingly being evaluated as additional incentives to lure additional participation by credit markets in support of economic revitalization undertakings.
Financial support is being generated to improve the quality and standardization of community development loan underwriting and documentation. Efforts to codify loan administrative procedures are also being increasingly supported. These new efforts, exemplified by programs operated by the Community Reinvestment Fund, in Minneapolis, seem sensitive to the need of rating agencies which must assess the risk and performance of community economic development loans before secondary market interventions can become the rule rather than the exception.
Educating financial institutions about secondary market securitization requirements remains an important task for regulators, government policy developers, and community revitalization proponents. Last summer, a series of clarifying letters addressed the permissiveness of banks purchasing debentures which targeted minority business loans and other forms of debt from targeted communities. The treatment of such debentures as "qualified investments" under CRA regulations increases the interest in community economic development financial products. The Federal Home Loan Bank of Chicago has even communicated its intention to allow bank members to borrow lower cost advances of Community Investment Program Funds for the purchase of such debentures. The Federal Home Loan Bank of Indianapolis has even created a specialized staff position to assist member banks in exploring community economic and commercial development products, programs and opportunities. The Federal Home Loan Bank of Boston recently reported that advances of community Investment Program Funds for community economic development activities by member banks has increased from six hundred thousand dollars in 1993 to over twenty-four million dollars in 1996.
Since securitization efforts are dependent on the pricing and sale of future loan pool revenues adequate information needs to be available to enhance confidence regarding the reliability of future payments. By consolidating data, which clarifies the track record of the initial lender's loan underwriting and management capability, an enormous hurdle may be overcome. Efforts to standardize the origination and underwriting of community economic development loans will require a concerted effort by sympathetic actors from the governmental regulatory and financial sectors. Already, agencies like HUD and SBA are exploring new approaches to identify market segmentation opportunities with respect to lending and business development initiatives in Empowerment Zones and Enterprise Communities. Ultimately, the willingness of small business borrowers to pay higher interest rates and the availability of equity capital and other credit enhancements should result in private capital markets discovering that it is possible to profit while supporting the capitalization of desperately needed new businesses and jobs in our most economically challenged neighborhoods and rural areas.