Good morning, Mr. Chairman, and Members of the Committee. My name is Dean R. Edwards. I am the Executive Director of The Affordable Housing Group, a nonprofit organization based in Charlotte, North Carolina supporting the development and construction of affordable housing in North and South Carolina. I am pleased to have this opportunity to be heard on matters relating to the Federal Home Loan Bank, and, in particular, rural credit.
First I should perhaps tell you about myself and my organization. I am a native of North Carolina and hold a degree in business administration from Lenoir-Rhyne College. In addition, I have done graduate work in real estate, finance, and development. I am also a licensed real estate broker. Prior to joining The Affordable Housing Group, I served as Executive Director of Home Owners Warranty Corporation of North Carolina. I have previously worked as marketing manager for a large builder/developer and have served in various positions in both commercial banking and mortgage lending institutions in North Carolina.
I should also mention at this point that I am currently serving as the chairman of the Affordable Housing Advisory Council of the Federal Home Loan Bank of Atlanta. The Advisory Council, as you know, consists of professionals from a wide range of nonprofit housing organizations, community groups, economic development and housing agencies, and affordable housing developers.
This group meets regularly with the Housing Committee of the Bank's Board of Directors to advise on housing finance, affordability, and community development matters. We also work closely with the Bank's Community Investment Services staff to maintain the high quality of the Bank's Affordable Housing Program and its Community Investment Program.
My organization is a 32-year-old nonprofit technical assistance provider for both single-family and multi-family housing development using a variety of financing, including Low Income Housing Tax Credits. We have provided such assistance to hundreds of community-based groups in North and South Carolina, resulting low, low, and moderate-income families. In addition to technical assistance, we work directly with community-based groups and developers to leverage the funds available to finance their projects. In that regard, we have been involved in several projects that were successful applicants for Federal Home Loan Bank subsidy funding provided through the Affordable Housing Program (AHP). The AHP has proven to be one of the most effective and flexible tools for helping housing developers assemble the funding for projects that have resulted in literally thousands of affordable housing units in the Southeast since the program was started in 1989.
My organization is consistently called upon to provide support in many of the non urban areas of North and South Carolina. However, it is our experience that inadequate access to loanable funds, as well as the expertise to develop low and moderate-income housing and to support economic development, continue to be serious stumbling blocks to economic growth in rural areas. While the other two panelists are more experienced and qualified in the area of banking and finance, my observations and published reports indicate that there are numerous factors that influence the reduced availability of funds in rural markets. These include branch banking, the increased acceptance of mutual funds for household savings, and reduced loyalty to local financial institutions.
The availability of adequate and affordable housing is one of the most significant factors in sustaining economic activity and attracting new jobs in rural areas. In turn, the lack of new economic development, and the decline in opportunities for employment in rural markets leads to a continuing exit of the young people who constitute the necessary emerging workforce in a healthy market. When farming becomes unprofitable or alternative employment is needed, rural communities generally lack the resources to respond. Consistently, we see a lack of development expertise in the rural areas that we serve. Local government, as well as local businesses, including the community financial institutions, do not have the resources, background or experience to address housing and development. Typically, because of their smaller size in dollars and number of units, these developments are both economically challenging and difficult to manage. Loans to support the types of developments that can be generated are not generally those that can be disposed of in the secondary market to help the local financial institution minimize its risk.
Per transaction costs to financial institutions in rural areas for these developments are generally higher than urban areas because the smaller size still requires the same amount of effort as the larger urban developments that are often well financed through fewer funding sources. Because of the significant amount of "layered" financing necessary, and the lower Area Median Incomes which must be served, these projects face far more difficulty than their urban counterparts. Having access to credit in these areas is critical. If community financial institutions can't use these projects as collateral for access to Federal Home Loan Bank funds, housing in rural America will be crippled. I have just come from a meeting of banks in Mooresville, NC, a small rural town in Iredell County, where the Town has asked our organization to help with a plan to address the severe shortage of affordable single family homes. One of the banks attending this meeting was Piedmont Bank, a Federal Home Loan Bank member with approximately $25 million in assets. To participate in the housing program, they would need access to Home Loan Bank funds, yet, if they make just a few real estate oans for commercial purposes to help the local economy, they will be in jeopardy of losing the ability to use Federal Home Loan Bank advances to support loans for affordable housing because of the mpact these few commercial real estate loans would have on the bank's Qualified Thrift Lender (QTL) status. Unfortunately, a bank that fails to meet QTL status is unable to fully access Federal Home Loan Bank advances, regardless of the bank's creditworthiness or the legitimacy of its borrowing needs. This makes no sense to me and raises a serious obstacle to maximizing the use of Federal Home Loan Bank advances for housing and economic development in many rural areas. Moreover, the difficulties are further magnified by the fact that the same loans that create QTL problems are generally not available to use as effective collateral for Federal Home Loan Bank advances. If Piedmont Bank is unable to access these funds, they will be unable to participate in a community wide effort to address a growing need. The loss of these loans would severely jeopardize the availability of affordable homes for the very employees of new businesses that have been attracted to the area. These companies cannot continue to hire workers from outside of the county to sustain their operations.
The rural mountain town of Franklin, North Carolina faced a similar problem. When faced with a growing economy, and the prospects of new employers, a shortage of affordable rental property suddenly became acute. In working with a local non-profit organization, my staff was able to put together a plan to alleviate this shortage with apartments financed through the Low Income Housing Tax Credit program. All that was needed was a long term low interest loan through the Federal Home Loan Bank AHP program. However, the only FHLB member in the area, Macon Savings Bank, was unable to support this project because of the statutory and regulatory limitations on loans to one borrower. Alternative sources of funds were not an option in this rural area. FHLBank membership was still being evaluated by the other local community financial institutions and, I believe, a concern for those institutions was the influence of the QTL limitations on their access to FHLBank advances. Other local sources were not readily available. Due to this problem, the project was delayed for two years until a way was found to spread the financing of this project among other lenders. This was a real blow to local employers and an economic burden to families who were traveling from other counties to work at jobs created in Franklin.
These are just two examples of the many problems that are facing the hundreds of small towns and rural counties in which I work each year. From Franklin to Belhaven in North Carolina I have seen what it means to local economies to have access to the Bank's AHP and Community Investment Funds.
Because S. 1423, by eliminating the QTL test, making membership voluntary for all eligible entities, easing the membership requirements for community financial institutions, and creating a broader base of eligible collateral, will facilitate access to the Federal Home Loan Banks for the smaller, rural financial institutions, I urge you to favorably consider those provisions in the bill to make the Federal Home Loan Banks an even more accessible source of investment for the sake of our rural communities.
Thank you for your time and attention.
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