The Community Development Financial Institutions Fund (CDFI Fund) is an agency of the U.S. Department of Treasury that promotes economic revitalization and community development through community investment and financial assistance to certified CDFI’s. The CDFI Fund created the Capital Magnet Fund (CMF) to spur investment in affordable housing and related economic development efforts that serve low-income families and communities across the country. The CMF award program supports the creation, acquisition/conversion, preservation, and rehabilitation of affordable housing in the places that need it most. It provides competitively awarded grants to CDFIs and qualified nonprofit housing organizations, and requires a 10:1 private investment leverage multiplier for every dollar of grant funding.
Operating under our broader multifamily lending division, Beneficial State Bank offers financing intended to further enhance affordable housing developers’ ability to compete with private capital. These can be permanent term loans or can serve as temporary financing while the developer acquires longer term funding. Long term funding could include federal subsidies or grant sources.
In 2018, Beneficial State Bank received a $3MM CMF grant to use as loan loss reserves for loans that create or preserve affordable housing. CMF-funded loan loss reserves are intended to act as credit enhancement, offering borrowers quicker access to financing than would otherwise be available. This is especially true for affordable housing developers who have urgent need for low-cost, quickly assembled financing to compete effectively with other market-rate developers.
CMF-funded loan loss reserves allow Beneficial State Bank the flexibility to issue tailored and low cost loan offerings that can be adjusted to market conditions and borrower needs. These loans, ranging in size from $500M to $1.5MM and averaging $1MM, and carry a low interest rates ranging from 1.1% to 5%.
Typically, nonprofit and affordable housing lending demonstrate lower debt service coverage ratios (an indicator of a borrower’s cash flow available to make loan payments) as a result of lower rents and thus lower monthly income.
With CMF-supported loans, we can keep the cost of financing low for nonprofits so that they, in turn, can keep rents affordable amidst the fierce competitive nature of housing development markets.