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Com Affairs 6/96

6/19/96 2:56 PM

Page 1




In August 1995, Fannie
Mae opened a Partnership
Office in St. Louis. In a special interview, Community
Affairs spoke with Clifton
Berry, director of the office,
who talked about Fannie
Mae’s objectives in St. Louis,
as well as nationally.
Clifton Berry



News and Views
on Community Affairs
for the
Eighth Federal Reserve District

St. Louis Fannie Mae Director Opening New Doors



Summer 1996

CA: What are some of the
factors that contributed to
Fannie Mae opening a
Partnership Office in
St. Louis?
I’d say the starting point
was somewhere around October
1994, when the company decided
it needed to open Partnership
Offices across the country. The
initial decision was to open 25
offices in key markets consistent with the company’s longterm goal, which is to spawn
10 million new homeowners in
a $1 trillion dollar initiative by
the end of the year 2000.
CA: What are some of your
other goals or your vision
for St. Louis?
There really is no exception
to what we’re doing nationally
versus what we’re doing in
St. Louis. What we’re doing in

St. Louis is a subset of that trillion
dollar initiative. It basically has
eleven components to it:
1. Opening Doors
Campaign: This is a direct
dialog with homeowners across
the country to determine issues
that affect home ownership.
In 1994, we said our goal was
to have a direct dialog on
home ownership with 5 million
American families. In ’95
we’ve had more than 1.2 million
consumers respond to our efforts
as a result of our advertising, etc.
2. Fighting
Discrimination: We
announced as part of the initiative that we would be working to
eliminate discrimination in the
mortgage finance system. In
1995, if we look at our single
family financings, 18 percent of
our purchased mortgages were to
minority households. That
compares with 16 percent in ’94.
We financed homes now for more
than 450,000 minority families
with $47 billion in mortgage
credit in ’94 and ’95.
3. New Americans
Campaign: Immigrants are
the fastest growing segment of
our population. We are targeting
this population by printing our
training materials in 10 or 11
different languages.

4. Home Path Initiative:
This is an initiative through
which we attempt to link people
who need homes with the agencies who do home ownership
counseling. There are parts of
the country where a homeowner
who wanted this kind of counseling wouldn’t have as many
outlets as we have in St. Louis,
so they could call a central
number that we’ve set up, and
we can pair them with trainers
who are typically using our
5. Underwriting
Flexibility: This is something we’ve been working on
for quite some time with what
we call our community lending
products. These are the products
that have the higher loan-tovalue—95-97 percent. The
qualifying ratios are more
expanded. We work hard
through our lenders to identify
non-traditional sources of
credit and actually build nontraditional credit reports with
agreements we have with
credit reporting agencies.
Continued on pg 2

Com Affairs 6/96

6/19/96 2:54 PM

Clifton Berry
Continued from pg 1

6. Partnership Offices:
We’ve committed to opening
25 offices across the country. I
think, today, if I’m not mistaken,
we have about 22 partnership
offices. Some of the cities we’re
in besides St. Louis are New York,
Chicago, Los Angeles, Atlanta,
Hartford, Boston, Miami, New
Orleans and Cleveland—it’s
kind of a representative set.
7. Underwriting
Experiments: We’ve committed to do about $5 billion
in these underwriting experiments. This is basically product
development. In St. Louis one
of our underwriting experiments has to do with the
St. Louis rehab mortgage—
only being offered in St. Louis.
If this pilot is successful, it may
be replicated in other cities;
likewise, if Chicago has a
program that is working,
we can bring it here.
8. Innovations for
Change: What we’re doing
is introducing new products.
For instance, we introduced
our Home Keeper mortgage
as a conventional reverse
mortgage where senior citizens
can use the equity in their
home to establish a stream
of income.
9. Multifamily
Housing Finance: We
also have established more
aggressive multifamily housing
goals. Fannie Mae is essentially a single-family company,
but because of our size we’ve
committed to financing
$50 billion in multifamily
housing to create affordable
rental housing opportunities
over the same period of commitment by the year 2000.

Page 2

Approximately 30 percent of the people employed
by this company…work on nothing but technology.
Through technological innovations we believe as
much as $1,000 can be squeezed out of the cost
of originating a mortgage.
—Clifton Berry
Director, Fannie Mae Partnership Office, St. Louis

10. Reducing Costs
Through Technology: I
think this is probably as significant as anything else we’re
doing. Approximately 30 percent
of the people employed by this
company—and there are about
3,500 employees—work on
nothing but technology. Through
technological innovations we
believe as much as $1,000 can
be squeezed out of the cost of
originating a mortgage.
11. Fannie Mae
Foundation: The commitment on the part of the
Foundation, hopefully independently, is to spend more than
$30 million a year over the
next 3 years to support housing
and community development.
It’s through this mechanism that
we support the operating budgets
of non-profit organizations
who are active in some aspect
of the mortgage finance system.
Whether training, counseling
or, in some cases, development,
that is the activity of the
CA: Tell us about the
HouseSt. Louis program
which was recently
We announced that over
the next five years we would
purchase mortgages totaling
$275 million in this market.
The interesting thing about that,
and I think probably a story
that’s buried in the numbers,
is that for us to get $275 million in mortgages, our activities

have to produce probably three
times that number. We buy
mortgages, of course, that are
made according to our standards, but there’s nothing that
says that if a bank makes a
loan that it has to sell it to us.
Our $275 million number is
based upon what we think we
can get out of the market, so we
have to work to increase the
market. Also we’ve committed
under the plan to make a
$500,000 investment in the
St. Louis Equity Fund. The
other key thing under the
HouseSt. Louis investment
plan is the development of
new products that are available
in St. Louis. One is the rehab
mortgage that we talked about
earlier, and another is the
middle-income homeowners
product which is designed
to attract people into the city
or to influence middle-income
earners who are presently in
the city to stay.
CA: Would you like to
see lenders more actively
involved in some way, and,
likewise, is there a way that
you would like to see nonprofits participate?
Actually, we’re getting a
tremendous amount of cooperation from lenders and nonprofits. In terms of the lenders,
in particular, we’d like to see
more signed up for our program.
We need more lender participation, and we’re working toward

that by training. We’re doing
a lot of training with lenders
because we find that it’s hard
for them to keep up with the
tremendous volume of new
products that’s always in the
market. At this point, it’s probably too early to say we’re not
getting the level of cooperation
or that there is anything else
we’d like the lenders to do except
to be responsive to what we’re
offering in the market and what
makes business sense to them.
I think that the strength of the
non-profits as a community is
very important to what we’re
doing, and we’d like to see them
strengthened by more cooperation, which I think is happening.
Being stronger as a group of
organizations helps them to
attract more resources in the
I would say that the operative
term is partnership. There’s
nothing we can do to meet our
goals and objectives in this
community without others in
the community joining hands
with us. I think it’s important to
raise the whole issue of housing
in the region to the highest
possible priority level.


Inmates in
Build Homes
and Futures

By constructing new homes,
inmates in Memphis’ “Building
for the Future” program provide
a service to the community and
also enhance their own future
job prospects.

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Com Affairs 6/96

6/19/96 2:57 PM


Inmates in
Build Homes
and Futures

By constructing new homes,
inmates in Memphis’ “Building
for the Future” program provide
a service to the community and
also enhance their own future
job prospects.

Page 2

n an average day in 1992,
nearly 2,500 people in
Shelby County, Tenn., were
housed in jails, and about
83 percent of them were repeat
offenders. A prolonged stay at
the Shelby County Correction
Center didn’t adequately deal
with the main causes of recidivism, which were drug abuse,
joblessness and a lack of education. The results for the inmates
and the community were
Then, in 1993, Memphis started
a unique community development partnership designed to
reverse this situation and to
provide more affordable housing
for limited-income families as

well. Through “Building for
the Future,” inmates at the
Shelby County Adult Offender
Center volunteer to enter a
three-month carpentry training
program that includes classroom
instruction and on-site construction of Habitat for Humanity
homes. Full-time instructors
teach not only carpentry training
to the inmates, but also basic
education and life skills.
Instructors are employees of
Memphis City Schools Division
of Technology and Careers.
The program meets four
specific objectives to benefit
the community:

1. It provides education and
training so that inmates are
able to find work when released
from prison. Inmates receive
training in marketable skills
that should reduce the rate
of re-entry into the criminal
court system.
2. It meets a critical need
for the Memphis area—the
renovation and construction
of housing units for limitedincome families. Currently
30,000 units are needed in the
city of Memphis. Both the city
and county are seeing the
conversion of substandard
housing into simple, decent
housing for families in need
as a result of this program.
3. It has added new homes
to the tax base of the city and
county. Each home has turned
non-tax producing property into
income-producing property for
the Memphis area.
4. It provides a means
for Habitat for Humanity of
Memphis to come closer to
meeting its mission of helping
low-income families attain
home ownership.
Screening by Adult Offender
Center counselors and “Building
for the Future” instructors allows
for the selection of students whose
sentencing permits their completion of the 12-week course—
inmates selected must have
attained work release status.
The neighborhood associations
where the inmates work are notified and support the program.
Volunteers of the “Building”
program have constructed 17
houses and 154 people have
graduated from the training.
One graduate is co-owner of
a construction company and
another is the owner of one
of the Habitat homes.
In August 1995, the program

began operating two classes
concurrently. Classes are made
up of 10 to 12 people. A third
course began in January for
medium-security inmates whose
sentencing does not permit
leaving the prison. The students
in these classes complete the
carpentry skills training and
build pre-fab panels for affordable
homes in a new plant established
in an old cannery on the Division
of Correction grounds.
First Tennessee Bank provides
budget and financial training
at the end of the classes. Most
of the homes have been built in
the Winchester Park neighborhood of Memphis where other
neighborhood revitalization
is occurring. The “Building”
program has also renovated
nine severely damaged public
housing homes and a community center in local public
housing projects.
For more information about
this program, contact Sue
Jackson, First Tennessee Bank
Corporate Communications,
at (901) 523-4357.

Com Affairs 6/96

6/19/96 2:53 PM

Page 1

Fannie Mae Selects
Fannie Mae has chosen
Louisville as the site of its first
Community Partnership plan.
The three-year plan is designed
to increase home ownership and
affordable rental opportunities
in Louisville.
The city will be able to leverage
Fannie Mae’s resources and
products through the partnership, which will emphasize low-,
moderate- and middle-income
city neighborhoods. Fannie
Mae is working on a structure
to invest in the Louisville
Community Development Bank
and the Park DuValle neighborhood development project. In
addition, Fannie Mae has made
a preliminary commitment to
invest up to 10 percent of the

total capital raised in the
Housing Partnership’s Louisville
Equity Fund. The Fund will
provide capital for the construction and rehabilitation of rental
properties in Louisville that
qualify for low-income housing
tax credits.
For more information, call
Fannie Mae at 1-800-7FANNIE.
Mattingly Joins
Louisville Branch
Tamme Mattingly recently
joined the Community Affairs
staff of the Federal Reserve Bank
of St. Louis. Mattingly, an analyst assigned to the Louisville
Branch, has several years of
experience with a commercial
bank in Louisville.
Mattingly will assist in the
Bank’s efforts to provide banks


financial institutions. She can
be reached at (502) 568-9216.

Tamme Mattingly

and bank holding companies
with information on appropriate
programs to help meet community development needs, as well
as promote the goals of the CRA
by facilitating communication
between borrower groups, local
governments, development
organizations and community

Videos Explain Native
American Lending
The Federal Reserve Bank of
Minneapolis has produced five
one-hour video tapes that show
how to lend to Native Americans
on Indian reservations.
The goal of the video set, which
includes a manual, is to teach
banks how to make loans on
reservations and how to settle
disputes with reservation residents who default. The set costs
$145 and is available by calling
1-800-553-9656, ext. 2290.


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In August 1
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Clifton Berry


Linked Deposit Program—
one of the nation’s most utilized linked deposit loan programs—deposits of state funds
are placed in Missouri banks at
below-market rates, allowing
eligible borrowers to obtain
low-interest loans from banks.
The $350 million program,
administered by the State
Treasurer’s Office, provides
opportunities for individuals,
businesses and organizations to
improve the scope and efficiency
of their operations.
Creation has been allocated
$110 million. This fund can be

used by new or expanding firms
operating in Missouri that have
ten or more employees. For every
$25,000 borrowed, at least one
job must be created or retained.
The minimum deposit and loan
amount is $90,000. Funds can
be used to finance relocation
expenses, working capital,
interim construction, inventory,
site development, machinery
and equipment, and other
expenses necessary to create
or retain jobs.
Business has been allocated $55
million. Eligible Missouri small
businesses must have fewer than
25 employees and be organized

Contributors: Judy Armstrong, Matthew Ashby, Tamme Mattingly, Keith Turbett and Glenda Wilson
Community Affairs is published by the Community Affairs Office of the Federal Reserve Bank of St. Louis. Views
expressed are not necessarily official opinions of the Federal Reserve System or the Federal Reserve Bank of St. Louis.
Please direct any questions or comments to Glenda Wilson at (314) 444-8317.

for profit. Small business loans
are limited to $100,000 and can
be used for operating expenses;
inventory; equipment purchase,
rental or lease; and maintenance, repair and renovation
to real property.
Other Linked Deposit funds
are designed to cover agriculture,
multi-family housing development, drought relief, and student loans.
Lenders and borrowers
may obtain information and
applications by contacting
the State Treasurer’s Office
at 1-800-662-8257.

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Com Affairs 6/96 insert

6/19/96 3:11 PM

Page 1

Community Development Investments
and the Lending Test
How to count qualified investments under the Lending Test in the new CRA examination

ommunity development
professionals will find cause
for celebration in a letter issued
Feb. 21, 1996, by all four bank
regulatory agencies describing
how banks can count investments in a community development bank (CDB) as qualified
activity under the lending test
in the new CRA examination.
The letter was issued in
response to a request from Cecil
Adams, president of Community
Bank of the Bay (proposed), a
community development bank
in formation in Oakland, Calif.
According to the letter, any bank
that makes an investment in a
CDB may choose to have its
investment evaluated strictly
under the investment test or
under both the lending test
and the investment test. The
following is an example of
how a bank’s investment
could be treated:
Assume an institution invests
$1 million in a CDB that has a
total capitalization of $10 million.* The CDB holds assets of
$30 million, with $12 million
in qualified investments and
$18 million in community
development loans.

The investing bank could
choose to have its $1 million
investment considered solely
under the investment test.
Alternatively, if it requested consideration under both the lending and investment tests, the
amount attributed to the investment test would equal the product of the bank’s investment in
the CDB and the percentage of
CDB’s assets portfolio comprised
of qualified investments.
The amount attributed to the
lending test would equal the
product of the investing bank’s
pro rata share of community
development loans originated
by the CDB during the period
under review and the percentage of the CDB’s asset portfolio
comprised of community development loans.
In this example, qualified
investments comprise 40 percent of the CDB’s total assets
($12 million of total assets of
$30 million), so the investing
bank would receive consideration of 40 percent of its total $1
million investment in the CDB,
or $400,000, under the investment test. It is assumed that
the remainder of the bank’s
investment has been used to
fund community development
loans in an amount equal to its
pro rata share of loans originated by the CDB. Since the bank
has supplied 10 percent of the
capital of the CDB, this provides
the basis for determining,
under the lending test, its pro
rata share (10 percent) of

community development loans
made by the CDB. Assuming the
CDB’s $18 million in loans were
originated during the period
under review and benefit the
bank’s assessment area or a
broader statewide or regional
area that includes the bank’s
assessment area, the bank’s pro
rata share of these loans would
be $1.8 million. However,
because community development loans comprise only 60
percent of the CDB’s asset portfolio, the bank would receive
consideration of only 60 percent of its pro rata share of
community development loans,
or $1.08 million, under the
lending test. In summary, the
bank’s $1 million investment
would be evaluated as a
$400,000 investment under the
investment test plus $1,080,000
in loans under the lending test.
An investing bank, as you
would imagine, must provide
its supervisory agency with necessary information to calculate
the appropriate breakdown
should the bank choose to have
its investment evaluated under
both the investment and the
lending tests.
The staffs of the four financial
supervisory agencies are in the
process of developing an official
commentary, in the form of
questions and answers, to provide additional guidance for
resolving interpretive questions
arising under the new CRA regulations. This commentary will
provide further clarification of

how such investments will be
treated under the new CRA regulations, including a description of other types of community development financial institutions in which banks could
invest and receive partial credit
under the lending test.
All in all, this is good news for
community development banks
and those institutions considering investments in CDBs. The
thoughtful response of the regulatory agencies to the question
of bank investments relative to
the new CRA regulations
demonstrates the agencies support and recognition of the
important work of community
development banks and that of
their bank investors.
Reprinted with permission by
Kelly K. Walsh, Community
Affairs Officer, Federal Reserve
Bank of San Francisco

* Any bank investment in a community development bank must be authorized by the investing institution’s primary supervisory agency.