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Volume 6, Number 3
December 1989
A newsletter from the Philadelphia Federal Reserve Bank about consumer credit and community reinvestment
Fed Sponsors Heavily Attended Sixth Annual Community Affairs Conference
The recent sixth annual Fedsponsored Community Affairs
conference outdid previous
sessions in attendance and
enthusiasm . Banks represented : 103. CEOs in the
audience: 37 . Total
attendance: 256.
million depositors."
"The community service tradition
continues," Mullane said . "After
some earnings setbacks, we have reestablished our leadership position.
In 1987, we enhanced our CRA
program not just for technical
Following a welcome by
Philadelphia Fed President,
Edward G. Boehne, the
conference moderator, Fred
Manning, Vice President and
Community Affairs Officer, took
over to introduce each speaker.
He prefaced his remarks about
the first , Donald A. Mullane,
Executive Vice President of
Bank of America, with:
"Probably no major bank better
fits the image of a financial
institution as steward of the
savings of people of modest
means and as a friend to the
struggling entrepreneur than
Bank of America, the famous
organization begun in San
Francisco in 1904 by
A. P. Giannini. The wellspring
for that kind of commitment
goes back to the philosophy of
its legendary founder. The
story is told that in the mid-20s
the bank had a chance to
acquire Wells Fargo Bank.
Giannini asked to see a list of
the bank's depositors. He
recognized a number of famous
names, but noticed that there
was no comparable listing of
ordinary customers. He turned
down the acquisition with a
much-quoted remark : 'I'd
rather have a thousand
bootblacks for depositors than
one Rockefeller.' A halfcentury later the Bank of
America had more than seven
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Donald A. Mullane
compliance but to capture the spirit of
the Act. This initiative mandates
community outreach for every unit
and real estate goals for each census
tract in low income areas. We
developed BASIC (Bank of America
Special Income Credit) with special
underwriting terms (personal , auto ,
and home equity/improvement loans)
to better fit typical customer profiles
in low income neighborhoods. To
date, we have made loans totaling
$10 .2 million. Every one of these
applicants would have been rejected
previously."
"This is the era of collaborative
lending ," he said. "Bank of America
is picking up about 20 percent of a
new $100 million revolving loan pool
with 45 other banks in California. In
addressing the affordable housing
needs of our markets, bankers are
beginning to pull their oars in the
same direction. Working together,
we can make a difference."
"What is the most critical need of
nonprofits?" asked James W. Head,
Executive Director, National
Economic Development and Law
Center. "Not money. It is building
and maintaining capacity. The
Berkeley-based housing expert
explained that capacity includes
"competent staff, technical
assistance, and educational
opportunities. "
"Initially, an appealing argument for
community-based economic
continued on page 2
Two headliners at the conference were the Hon. William Proxmire (left) and
the Hon. John Laware.
Community Affairs Conference ...
development was that the
community would have at its
service the CDC , which could
direct profits into services that
would benefit the community,
thereby eliminating reliance on
federal programs, foundation and
corporate support, and social
welfare programs . These
unrealistic expectations have
largely been dissipated by a
severely depressed economy,
high unemployment and lack of
affordable housing. Communitybased businesses face the
inordinate costs of functioning in
small markets dictated by limited
capital , unsophisticated
management and lack of technical
assistance."
nonprofits than anything else .
When the reinvestment programs
of financial institutions include
assistance with capacity needs for
this sector, the result will be
strong nonprofits who will have a
lasting impact on their
communities, " he concluded.
described "some of the thi ngs that
have worked for us."
"Our commitment to provide
fi nancial services to our
community at a fair price within
the context of strength and
stability starts with the Board of
Directors . Our Urban Affai rs
committee is a Board component.
A benefit is that our Board
members are proud and happy to
be a part of what we are doing ,
and we get top management
cooperation . Having a dedicated
(specialized) responsibility helps
our staff focus on the community.
Our people are out visiting
community groups regularly,
identifying places where we can
be a catalyst and provide
expertise," he said .
Daniel J. Callahan, Ill
James W. Head
"On the other hand, communitybased economic development
organ izations nationally have
carried out successful projects,
despite handicaps. They have
bu ilt nearly 125,000 housing units,
over 90 percent of which are for
low income occupants, and have
developed 16.4 million square feet
of retail space , offices and
industrial parks. They have made
loans to 2,048 enterprises , equity
investments in 218 ventures, and
they own and operate 427
businesses . The industrial/
commercial activities have
accounted for the creation and
retention of close to 90 ,000 jobs in
the past five years ."
"These successes have more to
do with the capacity of the
https://fraser.stlouisfed.org
Federal 2Reserve Bank of St. Louis
"Some encouraging aspects to
reinvestment" were described by
Daniel J. Callahan , Ill , Chairman
and Chief Executive Officer of
American Security Bank,
Washington. "We are meeting
young , knowing developers and
intermediaries who are on the job
every day, " he said . "As an
example, LISC (Local Initiatives
Support Corporation) is doing
good work. We helped support
LISC eight years ago when they
came to the District. There are
now LISC operations in 21 cities.
Another factor is that community
reinvestment is proving to be
good business for the community
and the bank. And by any
standard , the quality of the loans
we are booking has been
exceptionally good . We are in
this business to make a profit." (In
the past three years American
Security Bank has loaned over
$200 million for the development
of 250 co-ops , 6,000 rental
housing units, and more than 1
million square feet of retail and
commercial space, all in low
income areas of the city.).
A Philadelphia banker, Terrence
A. Larsen , Chairman of
Philadelphia National Bank,
Terrence A. Larsen
Reflections on the regulatory
philosophy were offered by John
Laware , member of the Board of
Governors of the Federal Reserve
System , who said that "CRA has
been a hot topic for Congress and
regulators for the past two years."
"We frequently see a
misconception about the law," he
said. "CRA doesn't mean that
banks have to institute new
charitable programs. Meeting
CRA requirements should be the
most natural thing in the world .
It's about knowing and serving a
market. But how do we salvage
years of neglect of this subject?
Awareness of community needs
and action thereon is the answer.
continued on page 3
Community Affairs Conference ...
"Government can't and shouldn't
provide all the solutions. The
private sector should take the
lead. Accept new partners. Look
at CRA as enlightened selfinterest. Also, understand that
there is a downside risk from
inaction. To have a CAA-subject
application approved by the
regulators is not as important as
having a carefully developed
image for community service and
sensitivity. Sometimes the CEO
doesn't know that his bank's
mortgage lending record may look
bad, because he's not getting the
facts. If CRA is a personal
concern at the top of the house,
much grief can be avoided" .
counseling to the poor, and should
utilize existing government
programs that address difficult
needs . In this regard , HUD offers
funds that can be useful. "
Ending on both a cautionary and
optimistic note, he suggested that
work needs to be done to
"improve mortgage lending
patterns across low-income
communities. We still have a long
way to go---but a journey of 1,000
miles begins with one step."
Edward G. Boehne (left) chats with
Dr. Bernard Anderson, Managing
Partner, Philadelphia Urban Affairs
Partnership.
Laware cited the Community
Affairs Officers of the Federal
Reserve System as "tremendous
respositories of information on
community development and
compliance" and urged bankers to
call upon them for assistance with
community reinvestment
concerns.
"As a four-time Chairman of the
Senate Banking Committee and a
30-year member of the U.S.
Senate, Bill Proxmire has etched
his name in history as one of this
century's most dedicated and
perceptive public servants, " said
Boehne, introducing the final
conference speaker.
"Before I introduced the bill
[Proxmire is known as "the father
of CRA"] Philadelphia National
Bank was already doing such
things as helping neighborhood
credit unions, lending in North
Philadelphia, and working hard to
establish the Philadelphia
Mortgage Plan ," Proxmire said.
He also lauded other Philadelphia
banks in a general sense as well
as American Security and Bank of
America for their community
reinvestment work.
"Home ownership is critically
important, and we need to devote
resources and full-time attention
to housing needs. Bankers
should provide financial
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Discussing the housing scene at
the conference were (left)
James M. Frangos, Vice President,
United Jersey Banks; and
Smallwood,
Benjamin A.
President, Camden Economic
Development Corporation.
James W. Head (left) talks with
H. Ahada Stanford, Deputy
Director of the Philadelphia Urban
Affairs Partnership, and Robert
Price, retired Vice President of
Mellon Bank (East).
Some of the major players: (left to right) Fred Manning, the Hon. William
Proxmire, Robert N. Hilkert, and Edward G. Boehne. Hilkert, a former
First Vice President of the Philadelphia Fed, was an instructor at the
Hill School, Pottstown, when Proxmire entered there as a student in
1929.
3
Fed Officials Take Tour To Learn Firsthand
How Two CDCs Are Revitalizing Germantown
Officials and board members of
the Philadelphia Fed recently
visited two community
development organizations
working to revitalize Germantown ,
which was the 1783 site of the
Bank of the United States and a
thriving Philadelphia neighborhood
until the 1960s when it began to
deteriorate.
Jr. , First Vice President; Fred
Manning , Vice President and
Community Affairs Officer;
Donald C. Kelly, Senior
Community Affairs Specialist, who
organized the tour; and Keith
Rolland , Economic Development
Analyst.
(In 1777, Washington and his
colonial troops lost the Battle of
Germantown to the British . Now,
it's the new "battle for
Germantown. " A battle against
crime, drugs and abandoned
houses .)
The group met with directors of
the Central Germantown Council
(CGC) and the Greater
Germantown Housing
Development Corporation
(GGHDC). As they toured CGC
projects , Benoliel praised
Donald P. Scott, CG C's executive
director, for "toughing it out."
The members of the public
relations committee of the board
of directors of the Philadelphia
Fed who participated in the tour
were Peter A. Benoliel , Chairman
of the Board of Directors of the
Fed , and Chairman , Quaker
Chemical Corp., Conshohocken ,
Pa. ; Gary E. Burl , President,
Delaware National Bank,
Georgetown , Del. ; and Carl E.
Singley , attorney, Philadelphia.
Participating from the Fed were
Edward G. Boehne, President ;
Larry Murdoch , Vice President
and Secretary ; William H. Stone ,
CGC , a coalition of over 50
neighborhood associations,
churches and businesses, recently
rehabilitated (with Rouse Urban
Housing) a vacant building into
Stokes-Rowe, a 16-apartment,
four-store project. It also
facilitated the opening of a card
shop and other businesses, as
well as public improvements
costing $4.5 million. CGC has
plans for a 50,000 square foot
shopping center, two mixed-use
properties and a boarding house .
continued on page 5
Visitors pause for a photo during the Germantown tour. They are (left
to right) Lawrence C. Murdoch; Fred Manning; William H. Stone, Jr.;
Donald C. Kelly; Byron W. Woodson, development director, CGC;
Carl E. Singley; Donald P. Scott; Edward G. Boehne; Herbert Wetzel;
Peter A. Benoliel; and Gary E. Burl.
https://fraser.stlouisfed.org
4
Federal Reserve Bank of St. Louis
Announce Home
Ownership
Plan for Trenton
New Jersey Department of
Community Affairs Commissioner
Anthony M. Villane , Jr. recently
announced a pilot home
ownership program which will
allow low and moderate income
families in Trenton to obtain
mortgages at less than market
rate and with a down payment of
as little as three percent.
The program , the Trenton
Mortgage Plan , is a partnership of
public, private and nonprofit
agencies which will allow
prospective homeowners to
borrow up to 17 percent of the
home's cost from DCA's Balanced
Housing Fund to use toward the
down payment. "This program will
open home ownership to people
who have given up hope ," Villane
said .
The Trenton Mortgage Plan
combines down payment
assistance with an agreement
from several banks to provide
mortgages at below market rate .
For low-income families , the
mortgage rate will be set at 1.5
points below market rate , while
moderate income families can
obtain a mortgage at one point
below the rate. To qualify as a
moderate-income family , the
income must be more than 50
percent but less than 80 percent
of the median income of the area.
Low income families are those
earning less than 50 percent of
the median .
The program was initiated after a
series of workshops conducted
earlier this year by the Federal
Reserve Bank of Philadelphia and
attended by representatives from
DCA, the City of Trenton , five
nonprofit groups from Trenton ,
and several banks serving the
area. Through the workshops, a
Fed-organized advisory committee
made recommendations regard ing
remedies for community
reinvestment issues in Trenton.
continued on page 5
Fed Officials Take Tour ...
It has obtained from Mellon Bank
construction financing of $1.2
million for Stokes-Rowe and an
inventory loan for the card shop,
plus grants from Germantown
Savings Bank and Provident
National Bank. The manager of
Provident's local branch , Shirlyn
Swann , serves on CGC's board
and as its treasurer.
"Investor confidence has been
restored to a significant degree,
with commercial rents rising
rapidly. A lot of vacant
commercial space needs to be put
back into use, some of it for
housing ," Scott said. He lauded a
Provident program to provide
substantial three-year operating
funds to selected community
development organizations,
explain ing that steady operating
support helps build
professionalism and career tracks.
The visitors learned that the
second group, GGHDC, has
rehabil itated and sold 90 houses
in the past 12 years , with only one
default, and provided systems
work on 311 owner-occupied
units. GGHDC has a ninemember rehab construction crew
and a stable staff. It has plans for
three projects : 47 units of elderly
housing , conversion of a mill into
40 units of housing , and a 20,550
square foot shopping mall ,
Freedom Square.
GGHDC has rece ived construction
financing from Mellon and
Philadelphia National Bank (PNB)
and expects to seek construction
financing from banks for its
current projects . Continental Bank
and PNB have made mortgages
through the Philadelphia Mortgage
Plan to many homeowners helped
by the non-profit. GGHDC
received grants for rehab of a
police mini-station from Fidelity,
Germantown Savings Bank, PNB
and Provident.
A HUD grant of $349,000 was
recently awarded to Philadelphia
for construction of a $1.71 million
shopping center, Freedom
Square, to be developed by the
Greater Germantown Housing
Development Corporation. The
Philadelphia
Industrial
Development Corporation is
contributing $400,000 and
Atlantic Financial is making a
$900,000 loan. Cooperating in
the project is the Wister
Neighborhood Council, an affiliate
of the Greater Germantown
group.
Herbert Wetzel , GGHDC's
Executive Director, said that
GGHDC works closely with the
Wister Neighborhood Council ,
which operates community organ izing programs such as block
clubs and anti -crime efforts, and
Germantown Settlement, which
runs social service programs for
youth and the elderly. "Still more
resources need to be devoted to
human development," Wetzel
said.
A sobering reality in revitalization
efforts is the menace of drug
problems, described by Rudy
Tolbert, Executive Director of the
Southwest Germantown
Community Development
Corporation . From first-hand
observation he explained that the
drug culture "impacts small
businesses, decisions of potential
homebuyers to move into the
neighborhood , and peoples'
feelings of security on the streets."
Tolbert believes that left
unchecked the problem can
cripple commun ity improvement
efforts and prospects.
If a free society cannot help the
many who are poor it cannot save
the few who are rich. - Abraham
Lincoln
Announce Home Ownership plan for Trenton ...
One of the primary issues of
concern was the decreasing ability
of people of modest means to
purchase homes in the city. The
participating sectors jointly
designed and recommended a
program that formed the basis of
the Trenton Mortgage Plan .
A descri ption of important
community reinvestment issues in
Trenton , and some related
response mechanisms , was
incorporated into the Lenders'
Profile of Trenton , published by
the Community Affairs
Department of the Philadelphia
Fed, in June 1989 . (In a
subsequent activity, the Fed
organ ized a Trenton Community
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Affairs Officers Council which
meets jointly with CAOs from
Camden area banks. The first
meeting was held in late October.
Sim ilar Fed-sponsored Councils
are also active in Ph iladelphia,
Harrisburg , and Wilmington with
approximately 150 bankers
involved .)
The seven institutions who have
agreed to participate in the
Trenton Mortgage Plan are United
Savings , New Jersey National ,
Roma Savings, United Jersey,
Trenton Savings Fund Society,
First Fidelity and National
Commun ity. Five nonprofit
groups, ISLES, Inc.; Latino
Community Land Trust ; TEAM ;
Interfaith Organizing Committee ;
and Neighborhood Housing
Service of Trenton will handle prepurchase and default counsel ing
and outreach efforts . The City of
Trenton will adm inister the
program . For details write to
Andrew S. Carten , Trenton
Mortgage Plan , Department of
Housing and Development ,
Division of Planning , City Hall
Annex , Th ird Floor, 319 E. State
Street, Trenton , NJ 08608 , or
phone(609)989-3505.
Those who believe in the mission
of community revitalization grieve
less about empty pockets than
about empty hands or empty
hearts.
5
Three Delaware Banks Cooperate in
Innovative Mortgage Revenue Bond Program
A recent $43 .7 million mortgage
revenue bond issue of the
Delaware State Housing Authority
(OHSA) has unique features which
will make homes affordable to
first-time buyers who otherwise
would not qualify. The issue is
unprecedented nationwide,
according to Smith Barney, underwriter for the OHSA bonds.
The unique issue was crafted by
William F. Krauss, Vice President
and Residential Mortgage
Manager of Delaware Trust
Company, and Martha S. Harris,
OHSA Director. Three banks--Bank of Delaware, Delaware Trust
Company and Wilmington Savings
Fund Society---are purchasing
subordinated bonds in the
partnership effort.
OHSA floated the issue. The
proceeds created two mortgage
financing pools, depending on
applicant's income and home
purchase price levels . A $36
million pool will be tapped for
mortgages of 8.45 percent while
another $4 million pool will be
used for mortgages of 6.25
percent. Both rates are fixed for
30-years. The lower rate
mortgages , called Family Assisted
Interest Rate (FAIR loans) are
made possible by the banks'
willingness to invest about
$7 41 ,000 in zero-coupon
subordinated bonds to be held for
th e full 30-year term . The bonds
are subordinate to investor-held
bonds. FAIR loans will be made
to applicants who would not
qualify at the 8.45 percent rate .
"Instead of merely acting as
lenders or originators, the banks
are creating a capital market. The
key to the deal is the rate of return
the banks are willing to accept.
The expected yield on the bonds
is 7.64 percent at maturity.
However, if there is an
unanticipated number of early
payoffs on mortgages financed by
https://fraser.stlouisfed.org
6
Federal Reserve Bank of St. Louis
the investor-held bonds, the
subordinate bondholders could
see a slight reduction in their
yield," Krauss said.
Another feature is "soft second"
mortgages which will be made if
applicants have sufficient income
to service the first mortgage but
insufficient savings to meet down
payment and closing costs.
Second mortgages may not
exceed $5,000 and homebuyers
must contribute a minimum of
$1,000 equity towards the
purchase. Second mortgages will
carry the same interest rate as the
first mortgages, but both principal
and interest may be deferred until
the property is sold, transferred or
refinanced. They are being
financed by a $500,000
appropriation from the State of
Delaware Housing Development
Fund . The Delaware Community
Reinvestment Action Council has
agreed that the three banks'
investments in the bond issue can
count towards the goals set by the
banks in previously-negotiated
CRA agreements, Krauss said.
William F. Krauss
In community development there
are few hopeless situations---only
people who have come to feel
hopeless about them.
Interview:
William F. Krauss
(CASCADE interviews
William F. Krauss, Vice President
of Delaware Trust Company, who
helped develop two lower-income
homeownership programs
involving public-private
partnerships . He has managed
Delaware Trust's residential
mortgage department for the past
seven years, and was previously
with the former Farmers Bank and
Girard for 14 years in residential
and commercial lending and as a
branch manager. Keith Rolland,
Economic Development Analyst,
Philadelphia Fed, asks the
questions.)
Tell us about your role in
crafting a soft second program
with the Wilmington Home
Ownership Corporation
(WHOC).
I worked closely with Alan Matas,
WHOC's director. We found that
there are many individuals,
qualified from the standpoint of
satisfactory credit and sufficient
income, who cannot pay down
payment and settlement costs.
We developed a program,
approved by the Federal National
Mortgage Association (Fannie
Mae), that provided for an 80
percent first mortgage and $1,000
downpayment with the difference
provided by WHOC in the form of
a silent or soft second mortgage.
You also developed the Family
Assisted Interest Rate Program
(FAIR). How did that come
about, and how is it unique?
Martha Harris, Executive Director
of the Delaware State Housing
Authority (OSHA), and I started
out to create a "silent soft second"
financing program . We kept
working at it, and the subordinate
bond was a natural progression.
To be successful on the second
mortgage program and to
leverage our funds, clearly we
needed to maximize the amount of
the first mortgage. FHA financing
enabled us to do that. We can
continued on page 7
Service To Community:
A Personal and
Professional
Commitment
(Lawrence T. Jilk, Jr., Chairman of
the National Bank of Boyertown
[Pa.], has a long record of
business and personal
humanitarian activities. He is
interviewed by Don Kelly, Senior
Community Affairs Specialist,
Philadelphia Fed.)
In your view, what
responsibilities do banks have
regarding the needs of the
communities they serve?
Too often we lenders concentrate
on the industrial development
level , and the establishment level.
It is important that we serve those
areas, but we also have to be
knowledgeable about other areas
of the economic spectrum . Once
we have knowledge of what the
needs are we can bring to bear
the resources of banks and other
institutions to solve unique
community problems.
Lawrence T. Jilk, Jr.
How have you responded to the
bankers' mission into the
community, starting at
homebase, Boyertown?
The highest profile activity we've
had is probably our Share
Account, our socially responsible
investment account. We are
paying regular money market
rates on a particular account
continued on page 9
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Interview: Krauss ...
help many more people as
compared to dealing in a
conventional sense and limiting
the first mortgage to 80 percent.
Smith Barney (underwriter for the
OSHA bond) told us that this is the
first time in the nation that the
public and private sectors have
come together in such a unique
fashion . It's unique that a portion
of a housing authority's bond
issue is a zero coupon 30-year
subordinate to be purchased by
the private sector solely for the
purpose of reduci ng the interest
rate to low- and moderate-income
families , enabling them to buy
Need a Speaker?
-~
t,~
~i@
I·
homes . And it's highly unusual for
three competing banks to work
together.
Why did you become involved
in developing programs for
these hard-to-reach lowerincome home ownership
markets?
In 1978, I was exposed to a City
of Wilmington mortgage revenue
bond effort. That sparked my
interest in how effective
government can be. Also, I think
that when we leave this earth , we
shou ld leave something behind --we've made a contribution . We
didn't just take. When I walk by a
unit that I was involved in ,
especially being a native
Wilmingtonian , the tangible proof
of one's efforts is very satisfying .
I'm also fortunate in that my senior
management provides me with the
opportunity to work on these
programs, which take an
extraordinary amount of workrelated and personal time.
..
-
I: ~
Recent developments related
to the Community Reinvestment
Act (CRA) arising within the
Federal Reserve, the banking
industry, legislative circles , and
community organizations, have
occasioned questions on many
points . Subject to availability,
these issues can be presented
in talks to various audiences ,
ranging from boards of directors
of banks to neighborhood and
civic groups, by Fred Manning ,
the
Philadelphia
Fed's
Community Affairs Officer.
Another speaker from the
Community and Consumer
Affairs Department who may be
available for guidance on
consumer banking legislation ,
is Phil Farley , Manager of the
Regulations Assistance function.
For details phone (215) 5746458.
Let's have your reflections on
issues raised by community
groups, and ways banks can
respond?
In the CRA protest (against
Delaware Trust) community
groups thought that our residential
mortgage underwriting
requirements were overly
stringent. But you need to be able
to sell your residential mortgage
loans to the secondary market,
which is largely Fannie Mae and
the Federal Home Loan Mortgage
Corporation (Freddie Mac) . They
set the underwriting criteria and
documentation requirements . We
don 't set the standards
exclusively. And frankly , their
underwriting is reasonable ,
flexible, and sensitive to
borrowers' needs. Fannie has a
department to work with lenders in
the creation of these programs .
Freddie is also working along the
same lines. Nobody is expected
to go out to reinvent the wheel as
much as to investigate what is
available and see how that can be
used to satisfy the needs of a
particular community.
7
Banks Help HDC of Lancaster Turn Cigar Factory into Apartments
41!
--
........
I-
-., ~ --,...
A vacant cigar factory, once a blight on the landscape,
is being adapted by HDC into 41 apartments for the
elderly and handicapped.
Financial institutions have played a
major role in an adaptive re-use
project in Ephrata, Pa. A deserted
cigar factory will become a 41 -unit
residence , the Franklin , for the
elderly and handicapped---a $1 .9
million project of the Housing
Development Corporation (HDC) of
Lancaster County.
Limited Holdings II , a subsidiary of
Meridian Bank Corporation , is the
sole limited partner, providing 99
percent of the equity. Farmers
First Bank of Lititz made a joint
land use agreement wherein HDC
i,..
---~
This is what the Franklin will look like when it is
ready for occupancy in early 1990.
will renovate and maintain a
branch bank parking lot
bordering the Franklin property.
"Without the bank, the project
couldn 't have happened ," said
Jim Eby, Director of
Development for HDC. "It's
great for both of us. Since
Farmers First is a business, the
parking spaces will be
uncrowded in the evening and on
weekends , when most of the
apartment dwellers have
visitors. "
The primary mortgage loan , in
excess of $1 million, came from
the Pennsylvania Housing Finance
Agency in the form of taxable
bonds and low interest money
from its general fund. Secondary
mortgage financing in excess of
$550,000 came from the
Lancaster County Redevelopment
Authority in the form of a grant
from the Pennsylvania Department
of Community Affairs and from
Community Development Block
Grant funds. For details, contact:
HDC of Lancaster County, 308 E.
King Street, Lancaster, PA 17602
or phone (717) 291-1911.
Bankers Hear Update on Harrisburg Region's Economic Development
That Harrisburg , once a
"backwater," is now an area of
impressive economic growth was
mentioned by several speakers at a
recent meeting of the FRBsponsored Community Affairs
Officers Council of Harrisburg . The
32 bankers present heard how
local , county, and state agencies
spur regional business growth .
"Bankers, a primary financial
resource , are often the first people
contacted by a new business
considering a move into the area,"
said David Nikoloff, Director of
Economic Development for the
Cumberland County Economic
Development Authority and
Associate of the Capital Region
Economic Development
Corporation . He explained how
"creative financing" had enabled a
https://fraser.stlouisfed.org
8
Federal Reserve Bank of St. Louis
major dress manufacturer and a
cream cheese maker to move to
the tri-county region , which he
named as "ranking beh ind
Boston as the second fastest
growing area in the U.S."
Strategies of the City of
Harrisburg we re detailed by
Jeffrey Wayne Schaffer, Director
of the Office of Business and
Industrial Development. "We
have leveraged about $3.5
million in loans , with a default
rate of less than three percent, "
he said. "We have the first
minority-owned business, a
sporting goods store, in our
Strawberry Square shopping
center. There are 35 people on
our waiting list, and $2 million in
requests , for loans pending. "
Fran Cunningham , Director of the
Dauphin County Office of
Economic Development,
described the county as being
both rural (north) and urban
(south) and representing a
marketing center of 500 ,000
people. Her office conducts tours
for business people from the U.S.
and overseas , such as "the couple
who had been traveling the
country, and said 'This is it' when
they saw Harrisburg. We also
provide information on cost of
living , consumer trends, and are
developing a real estate data base
to enable us to do more than
educated guessing ."
The Commonwealth of
Pennsylvania helps with economic
development through the
continued on page 11
Service to Community...
category. The bank forgoes its
profits on those accounts and
uses that profit to help low-income
housing . That is, we make third
mortgage loans. Our bank will
make a 90 percent first mortgage
loan ; our local Neighborhood
Housing Service will make a 10
percent second mortgage loan;
and our Share Account program
will make a non-interest bearing
third mortgage loan to defray
closing costs in excess of $1,500.
That way, a person is able to buy
a house for as little as $1,500 in
cash . The program is limited to
houses costing $30,000 or less.
In this program, operational for
about six months, we have
$800 ,000 in deposits at normal
money market rates and have
approved five loans.
Has the bank gone an extra
step in social responsibility in
other ways?
We serve on the Neighborhood
Housing Services (NHS) board.
To give them publicity and do
some good for the Reading
community, we organized
operation "Face Lift." We
solicited all the major banks and
industries in town and asked them
to adopt a house. Fourteen
organizations adopted houses,
and on one weekend we had
several hundred people out
painting and scraping. Area
residents served us lunch, and
there was excellent camaraderie
between neighbors and workers .
Also , we are financing a couple of
CDCs that are buying up
abandoned houses, rehabbing
them , and renting or selling the
finished product to low-income
buyers. These are loans at rates
we would not ordinarily make , but
it's for a good purpose. Our
experience to date has been very
good . Of course, the real estate
market has been strong . We have
probably financed 50 or 75 houses
through the CDCs---that means
the rehab of 50 or 75 homes. Our
greatest area of frustration is in
our commercial loans to lowincome people. Many have good
ideas, but not the background or
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Federal Reserve Bank of St. Louis
knowledge of the industry, and
they certainly don't have any
collateral. Our success rate in
approving commercial loans has
not been very good, but it is an
area we are constantly exploring.
Has community service been a
part of your personal as well as
professional life?
It's hard for a banker to separate
his private life from his business
life, but, yes, I have done
community service. I've been a
Big Brother for six years, and I do
volunteer work at a group home
for abused girls. We take them
bowling, to the movies or a play or
whatever---it's amazing what a
few hours of your time and a few
dollars of your money will do to
bring others joy. Also , I'm
involved with several groups that
are working to construct
transitional homes for abused
women , places where they can
live in a semi-sheltered
environment until they can make it
on their own.
What were some influences in
your life that moved you to
social service?
The turning point might have been
the two weeks I spent in Haiti
about four years ago. A group of
us, in a private effort, went down
to work in a medical clinic.
Although we had no previous
medical experience, we were
pulling teeth , suturing wounds,
and disbursing medicine. You
said "Oh , my gosh"---that is
exactly what we said---but either
we bluffed our way through , or the
patient would go uncared for .
That trip made me realize how
extremely fortunate we are, and
how we have to stop comparing
ourselves to people who might
have a bigger house, bigger car,
or whatever. We all have the
obligation, particularly those of us
who are college educated and
have decent jobs, to share some
of our talents and resources with
others. In addition, I've been
fortunate in that our bank is doing
extremely well. We have a great
president and staff. I'm able to
devote 10 to 20 percent of my
time to these outside activities.
We write it off and justify it to our
Board of Directors in the name of
CRA. It's a nice blending of my
personal interests with bank
duties.
I understand your daughter has
followed your example in some
ways.
Actually, both of my daughters are
moving in the direction of social
work and both went to Haiti on
separate trips. My youngest
daughter walked from Maine to
Washington, D.C., building houses
along the way for Habitat for
Humanity. My other daughter is
working at the Philadelphia
Literacy Council.
Do you have any advice on
community involvement for
bankers?
I've heard some say we don't
have any minorities or low-income
people in our area, and therefore,
we don't really have a CRA
challenge. But I don't know any
area that doesn't have social
problems such as drugs,
alcoholism, and abused women .
There are loads of areas where
bankers can use their talents,
resources, and connections. The
absence of minorities or housing
problems is really a cop-out,
because there are problems
everywhere.
Ogontz Avenue CDC
Wins Award
A small community organization
has received a prestigious award
for its work in renovating a
deteriorated shopping center in
Philadelphia's West Oak Lane
neighborhood.
The group, the Ogontz Avenue
Revitalization Corporation
(OARC), renovated Ogontz Plaza
in a joint venture with KODE
Development Associates , a
Philadelphia-based for-profit
developer. Evangeline Rush ,
continued on page 12
9
Habitat for Humanity Makes New Lives, New Homes, in North Philadelphia
"Community Redevelopment
creates self-sufficient families,"
said Woody Jenkins, former
Executive Director of the North
Philadelphia Chapter of Habitat for
Humanity. "When we help low
income families to buy homes,
the outgo of money for the
monthly mortgage payment is
fixed . Unexpected rent hikes
disappear. Families can
redistribute income for more of
life's necessities, and , as
homeowners, they pay taxes and
maintain their property well.
Everbody wins."
Habitat for Humanity is a nonprofit organization that provides
rehabbed and new homes for
poor families in North
Philadelphia. By year-end Habitat
will have rehabbed seven twobedroom townhouses and built
five new three-bedroom
townhouses--- "although , frankly , it
will take a tremendous amount of
money from, churches,
foundations, corporations and
individuals to complete the latter,"
Jenkins added. "We have lots of
muscle in our volunteers. It is
money, more than muscle , that is
needed now. "
"Two important criteria for our
housing are energy efficiency and
simplicity of construction ," he said .
"All houses have basements , a
patio , and a common open space .
No wonder we have more than
500 people on dur waiting list.
The rehabs sold for $25,850 and
the new townhouses , when
finished , will go for $42 ,000 .
Monthly payments, including
mortgage, taxes , maintenance,
water, sewer, and fire insurance,
are less than $200 a month .
Family selection criteria are: need
for decent shelter, financial
resources to meet the mortgage
payments, and a commitment to
work 500 hours ("sweat equity")
on their own homes and houses of
others . A family must also live,
work or worship in the immediate
area."
10
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Federal Reserve Bank of St. Louis
"Before"---the construction of new townhouses, the lot was trash
strewn, but had a sign of hope. Fred Manning, Community Affairs
Officer at the Philadelphia Fed, surveys the scene.
"After"---the five townhouses are under construction, with completion
scheduled for next year.
"Mayor Goode's administration
has encouraged us in many
ways ," Jenkins added . "The
Director of the North Philadelphia
Plan , Bilal Qayyum , drops around
often to see how we are getting
along. " (The City has deeded
acquired property to Habitat, and
assists with procedures to obtain
licenses and inspections quickly,
according to Qayyum , who added ,
"We see Habitat as a crucial
developer. Through rehabs and
new construction they are
providing decent housing and
helping the city rid itself of
abandoned buildings.") For
details on the North Philadelphia
Plan , write to Bilal Qayyum at the
North Philadelphia Revitalization
Program , 1231 N. Broad Street,
Philadelphia, PA 19122 or phone
(215) 978 -2999 . For information
on Habitat for Humanity, phone
(215) 765-6070 .
Marshall McBride (left), assistant
construction superintendent at
Habitat for Humanity's North
Philadelphia site, cuts tile while
Eloi Kingbo, supervisor with the
Philadelphia Youth Services
Corps, looks on.
Bankers Hear Update on Harrisburg ...
Governor's Response Team ,
r-----~
described by Joy M.Pooler, C.I.D.
(Certified Industrial Developer) ,
Assistant Director. The Team is a
coordinator and information
provider to help localities recruit
new businesses.
"Our four regional offices coordinate inter-agency assistance. We
rely on the expertise of local
banks, attorneys, Chambers of
Commerce . To put it simply, we
explain what Pennsylvania can
offer to new businesses to help
reduce start-up costs. This could
take the form of training grants,
professional planning , low interest
loans, and is especially important
during the early months in the life
of a new business. In the last two
years, we have seen 100,000 new
jobs created in the state by new
firms we have assisted."
Real estate deals that have made
Harrisburg grow were described
by Joyce Freeman Zeigler,
Economic Specialist with the
Buchanan Ingersoll law firm.
"Capital formation and leveraging
Don Kelly (left) Senior Community Affairs Specialist, Philadelphia
Fed, convened the meeting of the Harrisburg Community Affairs
Officers Council. With him are speakers (left to right) David Nikoloff,
Fran Cunningham, Jeffrey Wayne Schaffer, Joyce Freeman Zeigler,
and Joy Pooler.
are keys to development," she
said . "Small companies , less
than four years old with fewer
than 50 employees, are the
engine of economic growth ; 80
percent of jobs occur in this area.
There is not enough venture
capital for these businesses ."
She noted that Ohio, one of
Pennsylvania's competitors in
attracting small business, had a
state-created loan pool and bond
issue, which resulted in 150,000
new jobs. She suggested that
consortia for small business loans
were badly needed in central
Pennsylvania. "Private capital
pools help us do deals and raise
the flag on a pole indicating ' this
area is serious ... we can attract
more investment and bring more
private capital into the region '."
Regulations Assistance: Who Phones and Why?
Phil Farley, Manager, Regulations
Assistance, talks on the phone a
great deal. The principal source
of information and guidance at the
Philadelphia Fed on most banking
regulations, he handled 2,404
Farley also conducts seminars for
financial institutions and trade
associations throughout the three-
phone calls from January through
state Third Federal Reserve
October, 1989.
District. He currently serves on
the Boards of Directors of the
Consumer Credit Counseling
Service of the Delaware Valley
and the Consumer Credit
Association of Pen-Jer-Del. He
has written three pamphlets
distributed by the Federal
Reserve Bank. They are:
Comparing Mortgage Rates,
Comparing Average Mortgage
Costs, and Paving a Loan Off
Earlv: Things You Should Know.
These pamphlets are free (up to
50 copies) and may be ordered by
phoning Public InformationPublications , (215) 574-6 115.
Who is on the phone? Compliance
officers from financial institutions,
for the most part. What do they
want? Questions are most often
asked about the following laws :
Equal Credit Opportunity, Home
Mortgage Disclosure, Electronic
Fund Transfers, Loans to
Executive Officers of Banks,
Interest on Deposits , Truth in
Lending , Stock Market Margin ,
Unfair or Deceptive Acts or Practices , Availability of Funds and
Collection of Checks, Real Estate
Settlement Procedures, Fair
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Housing , Fair Credit Reporting ,
and Bank Secrecy.
Phil Farley is Regulations
Assistance Manager at the
Philadelphia Fed.
11
Ogontz Avenue ...
OARC's executive director, said
the award was given for
excellence in carrying out a
community development project
through a public-private
partnership.
The $2.25 million project was
financed with a $1.55 million
construction loan from Fidelity
Bank, a $500 ,000 Urban
Development Action Grant, a
$50,000 loan and $50 ,000 grant
from the Philadelphia Commercial
Development Corporation, and
$190 ,000 in public improvements
(new trees, sidewalks and lighting)
from the City of Philadelphia. The
project was finished in November,
1988. The 40,000 square-foot
mall has 12 stores, two-thirds of
which are occupied. A total of 37
permanent jobs have been
created thus far.
The project was a critical one in
the neighborhood , Rush
explained . The surrounding
neighborhood had changed from
predominantly white to black
between the 1960s and 1980s, but
households remained middle
income, typically with two incomes
from a mixture of professional and
blue collar jobs . "This was the
first commercial area in West Oak
Lane which was blighted ," Rush
said. "Blight is like cancer. You
stop it or it will keep expanding
and take over. Residents had
begun shopping outside the
neighborhood , but a feasibility
study showed that the
neighborhood could sustain a
shopping center. "
Evangeline Rush is executive
director of the Ogontz Avenue
Revitalization Corporation.
OARC now has begun to set its
sights on an empty, sealed
apartment building on the corner
of Ogontz Plaza. It wants to
renovate the 50-unit building to
provide housing for older people.
The building , owned jointly by
OARC and KODE, requires major
renovation and an assessment of
CASCADE
Federal Reserve Bank of Philadelphia
Ten Independence Mall
Philadelphia, PA 19106-157 4
FORWARDING & ADDRESS CORRECTION REQUESTED
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Federal Reserve Bank of St. Louis
its condition is to be conducted
shortly .
Although OARC has only two fulltime staff persons, it has been
active on a number of fronts . The
second staff person operates a
Private Industry Council referral
center providing job placement
and training . Also, OARC
recruited a police mini-station , with
which it shares offices, in order to
discourage crime. And it formed
an association of 15 neighborhood
businesses.
OARC's work has been
supplemented by a cadre of 20 to
100 volunteers, who have
organized a street fair and fashion
show, cleaned up lots and
removed graffiti. Its board
includes Margaret Smith, assistant
manager of a local Fidelity Bank
branch. OARC was formed by
residents and businesses in 1981 ,
and Rush has been executive
director since 1984. Previously
manager of a hospital intensive
care unit, and before that a
teacher, she said , "I saw an
opportunity to make a difference
and I saw other people who
thought they could , too." For
information , contact OARC , 717 4
Ogontz Avenue , Philadelphia, PA
19138 or phone (215) 927-5440 .
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