Full text of Partners Update (Federal Reserve Bank of Atlanta) : May/June 2012

View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

Community Development

May/June 2012

Articles
FEMA Online Tool Aids in
Community Rebuilding
Reinventing Older
Communities Conference
Materials Posted Online
Discussion of State Small
Business Credit Initiative
SE CDFI conference July
18–19
Prepaid Cards Evaluated for
Safety
Housing Rural Populations:
Overview of Changing Needs

Editor's Note: This publication is posted on a rolling bi-monthly schedule.
Updated June 29, 2012

FEMAs New Disaster Recovery Resource Offers
Support in Community Rebuilding
6/29/2012 - Identifying disaster recovery resources and
understanding how they can be knit together to fund
community rebuilding can be a challenge. The Federal
Emergency Management Agency (FEMA) has responded
to this need by launching an online tool.

Presentations from the Reinventing Older
Communities Conference Now Available Online
6/22/2012 - The fifth biennial Reinventing Older
Communities conference focused on building resilient
cities, with a particular focus on smaller cities that were
once manufacturing centers. Presentations and videos
from this event are now available on the Philly Fed's
conference webpage.
Federal Funding for State Small Business Programs
6/18/2012 - Don Graves of the U.S. Treasury Department
discusses a new program designed to enhance small
businesses, the State Small Business Credit Initiative.

Apply for Affordable Housing
Program Grant
Cleveland Fed Summit June
28-29
Forming Partnerships in
Workforce Development
Efforts
May 29 Session on Lessons
from Resurgent and
Transforming Cities
Fed Gov. Discusses Housing
Research Paper Reexamines
Foreclosure Crisis
Blog Posting Points to
Housing Improvement in the

CDFI Capital and Capacity in the Southeast
Conference July 18–19
6/15/2012 - Discuss the future of community
development financial institution (CDFI) capital and
capacity in the Southeast with regional peers at a
conference July 18–19 in Charlotte, North Carolina.
There is no cost to attend, but registration is required.

Prepaid Cards Being Evaluated for Safety
6/15/2012 - As prepaid cards gain acceptance among
consumers, the new Consumer Financial Protection
Bureau (CFPB) is examining ways to make them safer.
Take a look at what the CFPB is doing.

Southeast
Lending to Small Businesses
to Create New Jobs
Analysis of a Recent Mortgage
Proposal
Research Paper Considers
the Role of Government in
Housing Finance

Departments

Housing Trends in Rural Areas
6/11/2012 - Rural communities have historically had high
unemployment and poverty rates as well as substandard
housing stock. Joseph Belden of the nonprofit Housing
Assistance Council discusses housing challenges in rural
areas and strategies to improve those conditions.

Affordable Housing Program (AHP) Grant
Applications Due July 2
6/7/2012 - Applications for the Federal Home Loan Bank
(FHLB) of Atlanta's 2012 competitive Affordable Housing
Program (AHP) grants are now available. Applications
are due by midnight ET July 2. Interested applicants must
register on the FHLBAccess website to submit an
application.

Staff
Subscribe Online
RSS
Economic Development
Podcasts

Attend the Cleveland Fed's Policy Summit on
Housing, Human Capital, Inequality June 28–29
6/7/2012 - Join researchers, practitioners, and
policymakers from across the country at the 10th annual
Policy Summit on June 28–29, hosted by the Federal
Reserve Bank of Cleveland. Register today for the
conference.

Power in Partnerships: Addressing Workforce
Development Challenges
6/4/2012 - Workforce development issues require
collaboration across sectors and geography. Damian
Thorman, national program director at the John L. and
James S. Knight Foundation, discusses the importance of
public, private, and philanthropic partnerships in
addressing local and regional workforce challenges.
Call-in Session on Economic Development Strategies
for Small Industrial Cities
5/22/2012 - Join community development practitioners
from across the country at 3:30 p.m. ET on Tuesday, May
29, for a Federal Reserve call-in session, Smaller Cities
that Think Big: Lessons from Resurgent and
Transforming Cities. Register for this interactive session.

Federal Reserve Governor Speaks on Factors
Affecting the Housing Market Recovery
5/22/2012 - Federal Reserve Governor Elizabeth Duke
shared remarks on issues affecting the housing recovery,
including economic and regulatory uncertainty and credit
access for potential home buyers, at the midyear
legislative meetings of the National Association of
Realtors.
Why Did So Many People Make So Many Ex Post Bad
Decisions? The Causes of the Foreclosure Crisis
5/22/2012 - An Atlanta Fed research paper suggests that
prevailing optimism during the housing boom and the
resulting decisions made by homeowners and financial
institutions were primary causes of the foreclosure crisis.
The paper examines what led to some of these decisions
and how policymakers might respond in the future.

Signs of Rebuilding in Housing?
5/22/2012 - According to homebuilders and residential
brokers in the Southeast, the housing industry is
improving slowly. The Atlanta Fed's Center for Real
Estate Analytics staffers report on feedback from industry
representatives in a recent SouthPoint blog.

Closing the Gap: Improving Minority-Owned Small
Firms' Access to Credit
5/10/2012 - Small minority businesses typically pay
higher interest rates and receive smaller loans than
nonminority-owned firms of similar age and size. An
academic explores ideas to increase access to capital so
minority companies can create jobs and expand.

Can Home Loan Modification through the 60/40 Plan
Really Save the Housing Sector?
5/10/2012 - A recent proposal focused on mortgage
principal forbearance aims to improve the housing
market. Atlanta Fed economists Scott Frame and Kris
Gerardi raise questions about the effectiveness of that
plan in a current Real Estate Research blog posting.

The Devil's in the Tail: Residential Mortgage Finance
and the U.S. Treasury
5/10/2012 - Opinions vary about the appropriate role of
the federal government in the future housing finance
system. A research paper presented at the Atlanta Fed's
2012 Financial Markets Conference provides an
assessment of policy proposals that have been offered.

Disclaimer & Terms of Use : Privacy Policy : Contact Us : Site Map : Home
Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470 Tel. (404) 498-8500

Community Development

FEMA's New Disaster Recovery Resource Offers
Support in Community Rebuilding
May/June 2012

Articles
Independent Foreclosure
Review
FEMA Online Tool Aids in
Community Rebuilding
Reinventing Older
Communities Conference
Materials Posted Online
Discussion of State Small
Business Credit Initiative
SE CDFI Conference July 1819
Prepaid Cards Evaluated for
Safety
Housing Rural Populations:
Overview of Changing Needs
Apply for Affordable Housing
Program Grant
Cleveland Fed Summit June
28-29
May 29 Session on Lessons
from Resurgent and
Transforming Cities
Fed Gov. Discusses Housing
Research Paper Reexamines
Foreclosure Crisis
Blog Posting Points to
Housing Improvement in the
Southeast

June is hurricane preparedness month, which corresponds with the start of the hurricane
season. Looking ahead, September is national disaster preparedness month, a reminder
to community and economic development professionals of the importance of preparing
for natural or manmade disasters. Community and economic development professionals
must be ready to offer assistance when homes have been damaged or destroyed and
small businesses disrupted. Rebuilding after a disaster mimics the work conducted in
community and economic development, but often at a lightning pace and in a more
complex and complicated environment.
Community rebuilding requires collaboration among community organizations, state and
local governments, and financial institutions to bring back amenities, buildings, and
infrastructure. Effective rebuilding requires visionary leadership as well as dedicated,
educated organizations and individuals. And capital is needed—seed capital, long-term
patient capital, bridge loans for small businesses, and other sources of financing to
address both individual and organizational needs.
Identifying these resources and
understanding how they can be knit together
to fund recovery activities can be
overwhelming. The Federal Emergency
Management Agency (FEMA) has
responded to this need by launching a new
online tool. The National Disaster Recovery
Program Database (NDRPD) is targeted
toward state, local, and tribal governments
as well as emergency managers, planners,
and organizations working on disaster
recovery. The database allows users to find
funding programs from federal, state, tribal,
for-profit, nonprofit, and charitable entities
that offer support for recovery efforts. One
helpful feature is that the database can be
sorted using different criteria to identify
resources specific to each situation's unique
conditions. A recent search on long-term
recovery yielded nine federal sources that
included staples such as the U.S. Small
Business Administration's Disaster Home
Loans and links to lesser-known resources
such as the Craft Emergency Relief Fund, a
nonprofit that offers emergency
preparedness resources and relief for
working artists. Mitchell Wyllins, the project

Atlanta Fed Community and
Economic Development
Team's Role in Disaster
Recovery
Banking regulatory agencies like the
Atlanta Fed can play a role in
responding to disasters. The most basic
role is insuring that there is cash
available for residents and that banking
and payment systems operate as
normally as possible. Over the past few
years, the Southeast has experienced
hurricanes, floods, ice storms,
tornados, and environmental disasters.
In the aftermath of the storms, Atlanta
Fed community and economic
development (CED) staff members have
supported community rebuilding efforts
after disasters. They have also helped
raise awareness of long-term recovery
efforts and general disaster
preparedness. After Hurricane Katrina,
for instance, CED staff supported the
outreach efforts of financial institutions
working with homeowners. CED staff
also engaged with federal, state, and
local agencies to craft financing for
rebuilding. In Tennessee, following the
2010 floods, staff also worked with

Lending to Small Businesses
to Create New Jobs
Analysis of a Recent
Mortgage Proposal
Research Paper Considers
the Role of Government in
Housing Finance

Departments
Staff
Subscribe Online
RSS
Economic Development
Podcasts

manager for the database, noted that the
database was created "to help those
involved in community recovery identify
resources from all levels of government,
foundations, and other funding sources that
are free of commercial use." FEMA's
community recovery teams, which help with
long-term planning in heavily affected
communities, recently used the database to
educate community leaders on available
resources in the wake of Hurricane Irene in
New York and Pennsylvania. FEMA's goal is
that the database will become a useful
resource that provides local responders and
emergency managers with the ability to
share real-time information.

partners to identify housing needs and
funding gaps to repair or replace
damaged homes and help stabilize
families, many of whom had no
homeowner's insurance. More recently,
in Alabama CED staff worked with a
variety of stakeholders to guide
residents through the financial
landscape of mortgage lending and
affordable housing after their homes
were destroyed in the tornadoes of
2011 and 2012.
For more information on disaster
recovery resources for community and
economic development practitioners,
the Atlanta Fed's Disaster Planning,
Recovery and Rebuilding site includes
important news; publications for
consumers, individuals, small
businesses, and communities; and
essential information links.

The tool also catalogs philanthropic
resources available to communities affected
by disasters. Since these sources and the
target uses of these funds can vary
depending on the mission of the foundation or the geographic region, the database is
particularly useful to foundations interested in providing support to remote communities
or those that have a specific set of needs. Wyllins said that after its initial launch in March
2011, the database has incorporated feedback from users from the various organizations
assisting in recovery.
The database has also grown in the number of programs included. For that process,
interested parties can request that their information be uploaded. NDRPD then vets the
source to validate authenticity and posts those that meet its criteria in the database.
NDRPD encourages organizations not only to use the database to find programs, but
also to help in adding program information. When asked about the importance of finding
new programs to add to the site, Wyllins remarked, "We've built the car, now we need to
make sure that we identify the drivers who can help communities get on the road to
recovery."
A companion database, the Lessons Learned Information Sharing, comprises best
practices, innovative ideas, and lessons learned. It provides first responders and
emergency managers with information and expertise on effective planning, training, and
operational practices.
To request training on the NDRPD site or if you have any questions, please e-mail
Mitchell Wyllins. For information on current disaster zone declarations, FEMA's website
houses information on the 2012 Federal Disaster Declarations.
By Nancy Montoya, senior regional community and economic development manager,
New Orleans branch

Disclaimer & Terms of Use : Privacy Policy : Contact Us : Site Map : Home
Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470 Tel. (404) 498-8500

Community Development

Presentations from the Reinventing Older
Communities Conference Now Available Online
May/June 2012

The fifth biennial Reinventing Older Communities conference focused on building
resilient cities, with a particular focus on smaller cities that were once manufacturing
centers. Conference sessions explored topics such as strategies to build a job-ready
workforce and strong small business sector, successful urban school reforms and
foreclosure prevention programs, new uses for brownfields and vacant land,
environmental sustainability initiatives, and the role of anchor institutions in economic
revitalization. Presentations and videos from this event are now available on the Philly
Fed's conference webpage.
The conference was held May 9–11 and hosted by the Federal Reserve Bank of
Philadelphia and its cosponsors. The conference attracted community developers and
advocates, government and foundation leaders, researchers, policymakers, bankers,
planners, and others interested in the future of cities.

Lending to Small Businesses
to Create New Jobs
Analysis of a Recent
Mortgage Proposal
Research Paper Considers
the Role of Government in
Housing Finance

Departments
Staff
Subscribe Online
RSS
Economic Development
Podcasts

Disclaimer & Terms of Use : Privacy Policy : Contact Us : Site Map : Home
Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470 Tel. (404) 498-8500

Community Development

Federal Funding for State Small Business Programs
This article is part of a continuing interview series that spotlights important views from
experts in the community and economic development field.
May/June 2012

Historically, the success of the small business sector has been a critical component to
creating jobs and building a robust and healthy economy. Federal, state, and local
governments have recently enacted new or enhanced policies and programs in support
of small businesses, one of which is the State Small Business Credit Initiative (SSBCI).
The SSBCI program was a component of the Small Business Jobs Act that President
Obama signed into law in September 2010. It allows states to build on models for new
and existing state small business programs, including but not limited to collateral support
programs, capital access programs (CAPs), and loan guarantee programs. Congress
funded the initiative with $1.5 billion for new and existing state programs that support
lending to and investment in small businesses and small manufacturers. The program is
administered by the U.S. Department of the Treasury.
Janet Hamer, senior regional community development manager at the Jacksonville
Branch of the Atlanta Fed, spoke with Don Graves, deputy assistant secretary for the
Office of Small Business, Community Development, and Housing Policy at the U.S.
Treasury Department, about the SSBCI program.
Janet Hamer: I understand the SSBCI program is intended to support state programs
that provide financing to small businesses and small manufacturers. That said, what are
the desired impacts of the SSBCI program?
Don Graves: The overarching objective is to leverage $10 in private lending and
investing in small business to every $1 in public funds, which will, in turn, help create and
retain jobs. States use SSBCI funds from the Department of the Treasury to provide
credit support to small business loans and investments. Under the program, states can
guarantee loans, purchase a participation in a bank loan, contribute to a funded reserve
account at a financial institution, or invest directly into small businesses. The program
structure varies by state, which gives state officials the ability to tailor their efforts and
best address local economic conditions. It is still early in the program implementation
phase, but we are already seeing evidence that SSBCI is successfully leveraging small
business lending and creating jobs. For example, Louisiana recently used $281,000 of its
SSBCI funds to guarantee a working capital loan to a start-up manufacturer, which
enabled the company to commence operations and hire 64 new employees.
Hamer: I know that there is a lot of variation and customization in how states are allowed
to use their allocations. Can you describe how states in the Sixth District (Alabama,
Florida, Georgia, and parts of Louisiana, Mississippi, and Tennessee) are planning to use
their SSBCI funds?
Graves: States in the Sixth District operate a range of programs. Approximately twothirds of total funds allocated among these states support private lending, and one-third
of funds support state-run venture capital programs.

Lending to Small Businesses
to Create New Jobs
Analysis of a Recent
Mortgage Proposal
Research Paper Considers
the Role of Government in
Housing Finance

SSBCI program information for Sixth District states
State

Capital
access

Loan
participation

Loan
guarantee

Venture
capital

Alabama

Alabama
Department
of Economic
and
Community
Affairs

Georgia

Georgia
Department
of
Community
Affairs

Florida

Florida
Department
of Economic
Opportunity

Louisiana

Louisiana
Economic
Development

Mississippi

Departments
Staff
Subscribe Online
RSS
Economic Development
Podcasts

Tennessee

Contact
information

Mississippi
Development
Authority
X

Tennessee
Department
of Economic
and
Community
Development

Source: U.S. Department of Treasury, complete chart

Here are highlights of some of the regional lending programs:
Alabama operates a CAP, a loan participation program and a loan guarantee program,
through the Department of Economic and Community Affairs (ADECA). ADECA reports
that its loan guarantee program is popular with a range of financial institutions, including
community banks of varying sizes as well as community development financial
institutions (CDFIs). In one early success story, ADECA guaranteed a $1 million loan
from a CDFI bank to a nursing home facility with 39 employees.
Louisiana Economic Development (LED) used SSBCI funds to reinvigorate an existing
loan guarantee program. Lenders in Louisiana are drawn to the program because of the
experienced staff and because LED targets a seven- to 10-day turnaround time for
approving most loan requests.
Florida operates the full range of programs, including a CAP, a direct loan program, and
a loan participation program targeting exporters. All programs, with the exception of the
CAP, are managed by Enterprise Florida, a public-private partnership.
Interested financial institutions should contact the state or visit its website for detailed
information.

Hamer: Generally speaking, who are the key players in this program, and what can they
do to help make program implementation effective?
Graves: The two key players are the state program managers and the financial
institution lenders or investors. Program managers are the state agency points of contact
who bear responsibility for managing the federal funds, creating the local program
guidelines, and approving transactions. In some states, private entities have contracted
with the state to administer particular aspects of the program, which is subject to state
agency supervision and oversight.
For the program to be effective, banks, credit unions, and CDFIs must be aware of the
program and use it. In states that have never operated a credit support program before
receiving SSBCI funds, a key challenge is to cultivate a relationship with small business
lenders and investors. I encourage lenders and investors to attend the roundtable
discussions that are coordinated by the state offices and regulatory agencies because
they are an important opportunity to meet state program managers and learn more about
the SSBCI-supported state programs.
Hamer: Can you describe how this program might work in conjunction with other existing
state and/or local programs?
Graves: The program works well for small businesses that may need an expanded line
of credit or a new equipment purchase to grow and create jobs. For example, the value
of a business's plant property and equipment may have depreciated significantly during
the real estate bust, or historic cash flow from 2009 and 2010 may not sufficiently support
the credit request, but current cash flow might. Lenders report that these are the types of
businesses that can likely benefit from credit support.
SSBCI-backed programs may use funds to support a transaction where there is
additional public money involved. The state must still meet program requirements for
generating private financing. Note that public funds do not count toward the state's
private leverage requirement. At a minimum, private lenders or investors must have at
least 20 percent of the risk in any given transaction, according to the SSBCI Policy
Guidelines. It is also worth noting that SSBCI funds may not be used to provide credit
enhancement to the unguaranteed portion of loans guaranteed by the federal
government such as the Small Business Administration (SBA) or the U.S. Department of
Agriculture.
Hamer: Please discuss how this program can provide benefits to underserved
communities, women and/or minority entrepreneurs, and perhaps support organizations
that seek to provide assistance to these groups. And have you observed any state
programs that have been particularly effective in addressing the needs of such
businesses?
Graves: As part of its application, each state reported on its plan for expanding access to
credit to small businesses in underserved communities. One way for states to target
underserved communities is to work with CDFIs that target or are otherwise active in
these markets. CDFIs may enroll loans in state guarantee, participation, and collateral
programs just as any other bank or credit union might. In other cases, the CDFIs serve
the state more directly by acting as a loan packager and servicer or even administering
funds on behalf of the state. State program managers perform their own due diligence to
determine that each lending partner has sufficient capacity and experience, but in
general, CDFIs have been early adopters of SSBCI programs and have made great
partners for the states. In Alabama, Mississippi, and Florida, CDFIs enroll loans in state
programs, and Georgia has set aside a portion of its allocation specifically to support
partner CDFIs.

SSBCI funds may also be used to support lending to nonprofits so long as the financing
is for a "business purpose." We anticipate that SSBCI supported financing of nonprofits
will be an important part of the program's impact.
Hamer: Are you observing any challenges or barriers associated with the SSBCI
program, particularly for the Sixth District?
Graves: The biggest challenge is increasing lender and investor awareness and
participation. Many southeastern states have not have operated a credit support
program, and it takes some time for a state to develop those working relationships with
lenders and investors. For lenders that do not have an SBA platform, SSBCI offers an
alternative. But for lenders that do use SBA-guaranteed products, they may ask, "Why
would I use SSBCI?" Banks say they use SSBCI to complement SBA-guaranteed
products, including loans that need credit enhancement but that may not justify the costs
of securing a 75 percent SBA guarantee. The program can also be useful in helping to
provide loans to nonprofits, which are not eligible under SBA rules. It can additionally be
used to provide bridge loans during the construction phase of a 504 transaction until
takeout by the SBA debenture. We also see states focused on short-term working capital
financing, in part because of the program's leverage requirements.
Hamer: What do you consider to be the greatest opportunities associated with the
implementation of this program?
Graves: SSBCI provides $1.5 billion to support new and existing state programs that
provide lending to, and investments in, small businesses and small manufacturers. The
program is also expected to spur up to $15 billion in additional private-sector lending and
investing. Leveraging this capital is the most immediate opportunity for small businesses
across the country. Because every state was entitled to an SSBCI allocation, states
collaborated from very early on in the program by sharing program design ideas,
template documents, and marketing techniques. The Treasury Department will add to the
knowledge-sharing process by disseminating best practices as they emerge. After the
five-year SSBCI allocation period ends, the funds will remain within the state budget and
can be used to support other small business lending programs. Another important
opportunity is to develop the capacity of state-level credit enhancement programs and
serve the credit needs of small businesses through innovative, sustainable lending
programs and practices. The vision of SSBCI is that states use this opportunity to learn
from successful practices and develop long-term capacity to support small business
finance in the future.
For more information about the SSBCI program, please visit the Treasury Department's
website.

Disclaimer & Terms of Use : Privacy Policy : Contact Us : Site Map : Home
Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470 Tel. (404) 498-8500

Community Development

CDFI Capital and Capacity in the Southeast Conference
July 18–19
May/June 2012

Join peers and experts from around the region at the "Defining the Future of CDFI
Capital and Capacity in the Southeast" conference July 18–19 in Charlotte, North
Carolina.
The conference will focus on investment and collaboration strategies for building
community development finance capacity in the Southeast. Session topics will address
issues such as social investing, institutional and individual investment strategies, crosssector collaboration, partnership development, enhanced capital deployment strategies,
growing to scale in the region, and strategies for developing future generations of
leaders.
Participants will include community development financial institutions, community
development banks and credit unions, community development organizations, financial
institutions, foundations, social investors, and industry leaders. Loan funds and other
collaborative lenders are also encouraged to attend.
There is no cost to attend, but registration is required. The Federal Reserve Banks of
Atlanta and Richmond are hosting the conference in partnership with the Opportunity
Finance Network and NeighborWorks® America.

Lending to Small Businesses
to Create New Jobs
Analysis of a Recent
Mortgage Proposal
Research Paper Considers
the Role of Government in
Housing Finance

Departments
Staff
Subscribe Online
RSS
Economic Development
Podcasts

Disclaimer & Terms of Use : Privacy Policy : Contact Us : Site Map : Home
Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470 Tel. (404) 498-8500

Community Development

Prepaid Cards Being Evaluated for Safety

May/June 2012

The prepaid card industry is growing fast and not just among underbanked consumers.
In an Atlanta Fed Portals and Rails, assistant director of the Retail Payments Risk Forum
Cynthia Merritt describes the implications of this growth, particularly as it relates to
consumer protections. The blog also highlights the role of the new Consumer Financial
Protection Bureau (CFPB) in promoting safety and transparency in the market.

Lending to Small Businesses
to Create New Jobs
Analysis of a Recent
Mortgage Proposal
Research Paper Considers
the Role of Government in
Housing Finance

Departments
Staff
Subscribe Online
RSS
Economic Development
Podcasts

Disclaimer & Terms of Use : Privacy Policy : Contact Us : Site Map : Home
Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470 Tel. (404) 498-8500

Community Development

Housing Trends in Rural Areas
This article is part of a continuing interview series that spotlights important views from
experts in the community and economic development field.
May/June 2012

Even with nearly 20 percent of the population living in rural America, housing challenges
in these areas are often overshadowed by those of their urban counterparts. Many rural
markets have historically faced a declining employment base, often leading to
unemployment, underemployment, and persistent poverty, according to Federal Reserve
research. More recently, federal, state, and local economic conditions have led to
reduced funding for rural community and economic development programs. Furthermore,
rural America has been hit hard by high rates of mortgage delinquencies and
foreclosures, just as urban areas have.
Sibyl Slade, senior regional community development manager at the Atlanta Fed, spoke
with Joseph Belden, deputy executive director at the Housing Assistance Council (HAC),
to learn more about the impact of the economic downturn on rural markets and
implications for future housing needs in those areas. HAC is a national nonprofit working
to improve housing conditions for the rural poor. It offers assistance through rural housing
development loans and grants, training, technical support, and research on rural topics.
Sibyl Slade: Joe, what can you tell us about how the recent housing crisis has played
out in rural markets?
Joseph Belden: Rural America has had high rates of poverty and substandard housing
for decades. Today housing quality is less of a problem than affordability and availability
in many areas. The lack of quality affordable housing options has become a more
pronounced issue since the downturn, and while many rural areas have experienced less
boom (and thus less bust), there are still challenges. In 2010 the U.S. Department of
Agriculture (USDA) reported that 19 states had higher foreclosure rates in rural counties
than urban counties. Five of these states are in the Atlanta Fed's District—Alabama,
Florida, Georgia, Mississippi, and Tennessee. In many rural areas, unemployment and
underemployment have been the main factors causing homeowners to fall behind.
Another challenge, however, is limited access to quality affordable mortgage financing.
Rural areas have fewer financial institutions and thus less competition and increased
costs to consumers. Since Home Mortgage Disclosure Act (HMDA) data only account for
information collected from financial institutions that are required to report lending data,
and many that serve rural communities are not subject to that requirement, the data do
not tell the full story of mortgage financing. It does, nonetheless, illustrate one aspect of
housing challenges for rural America.
Slade: Have there been any unexpected findings or trends around rural development
issues that emerged in HAC's recent research?
Belden: Very recent HAC research shows that rural America has a group of 429
persistently poor counties—places that have had 20 percent or higher poverty rates

Lending to Small Businesses
to Create New Jobs
Analysis of a Recent
Mortgage Proposal
Research Paper Considers
the Role of Government in
Housing Finance

Departments
Staff
Subscribe Online
RSS
Economic Development
Podcasts

since 1990 (i.e., in the 1990, 2000, and 2010 Censuses). Interestingly, if you measure
this from 1980, the number of persistently poor counties goes down to 382. So some
things are getting worse. In such places, community and economic development needs
continue to be both broad and complex. Another interesting fact we're seeing is that
many metropolitan areas actually have large rural populations in the “exurbs.” In fact,
over half of all rural residents actually live in the outlying counties of metro areas.
Additionally, we have also found that minorities now account for three-quarters of rural
population growth, which may come as a surprise to some. This is discussed in HAC's
April 2012 issue of Rural Research Note. It's on our site at www.ruralhome.org.
In terms of housing options, we find that manufactured housing continues to grow as a
rural housing choice. Perhaps one issue for the future will be the continued availability of
affordable financing products for this kind of housing stock. Often, manufactured housing
is primarily financed by a personal property loan rather than a mortgage loan. Such
products typically require low down payments, but they often have higher interest rates
with shorter repayment terms.
Another obstacle for rural communities is the lack of local capacity to both build new
homes and renovate existing housing stock. There may be few or no local for-profit,
nonprofit, or public builders that understand how to undertake such projects or have
knowledge about how to use available funds and programs. Often we find this lack of
capacity is highest in areas with the greatest need.
Lastly, although it has been a very successful program, we have seen a decrease in the
use of the USDA's Section 502 direct loan program in the last few years. I think there are
several factors contributing to this trend, including a sharp decline in funding available in
the program, effects of the economic recession, which resulted in a decreased number of
interested and qualified buyers, staffing cuts at USDA leading to administrative
challenges and delays for the program, and the outmigration of younger adults from
many rural areas. The 502 program is also now being used mostly for the purchase of
existing homes.
Conversely, there has been rapid growth in use of the Section 502 guaranteed loan
program, with increased funding from Congress.
Slade: What programs or other efforts have been most successful in meeting rural
housing needs?
Belden: As I mentioned, USDA's 62-year-old Section 502 direct loan program has quietly
but successfully made homeownership a reality for over 2 million low-income families. It
provides qualified applicants up to 100 percent financing to purchase an existing
dwelling, purchase a site and construct a dwelling, or purchase newly constructed
dwellings located in rural areas. Mortgage payments are based on the household's
adjusted income.
Another USDA initiative, the Section 515 rental housing program, has provided funding
for the construction of affordable rental options for over 400,000 households since the
1960s. The residents of these affordable rental homes have incomes averaging less than
$11,000, and over half are elderly and disabled. One ongoing challenge is keeping those
units affordable and available for low-income tenants.
In most of the USDA housing programs, mission-driven community organizations—
primarily nonprofits—have played an essential role in putting those and other housing
funds to work in rural places. An example of one successful local group is Florida Home
Partnership (FHP), a nonprofit housing developer in the Tampa area. FHP has built over
400 homes in recent years, mostly using USDA's self-help, sweat equity program for low-

income homeownership. HAC has loaned and granted substantial funds to FHP to help
in this building. There are other such successful organizations around the country, but
not enough of them. Often there are few if any such groups in those 400 persistently
poor counties that I mentioned earlier.
Slade: How do you expect rural housing trends to change over the next decade? And
what will this mean for future planning and policy needs?
Belden: We think several important factors will contribute to rural housing trends in the
next 10 years: the aging of the rural population, continued outmigration of rural residents
and particularly younger populations, rapid growth in some rural retirement or vacation
destinations or in areas with new industry such as oil and gas exploration, possible
cutbacks in rural housing programs, and a growing need for affordable rentals and
assisted living, including a need to preserve those rentals that now exist. Policy and
planning efforts will need to focus on each of these aspects to comprehensively address
rural housing issues for the next decade.

Disclaimer & Terms of Use : Privacy Policy : Contact Us : Site Map : Home
Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470 Tel. (404) 498-8500

Community Development

Affordable Housing Program (AHP) Grant Applications
Due July 2
May/June 2012

Applications for the Federal Home Loan Bank (FHLB) of Atlanta's 2012 competitive
Affordable Housing Program (AHP) grants are now available. Applications are due by
midnight ET July 2. Interested applicants must register on the FHLBAccess webpage to
submit an application.
Approximately $13.5 million in grants will be awarded through the 2012 AHP program,
with up to $500,000 awarded per project. Funding can be used to assist with the
acquisition, construction, rehabilitation, and development of rental or owner-occupied
housing to persons earning 80 percent or below the area's median income levels. Eligible
organizations include for-profit and nonprofit housing developers, public entities,
contractors, community builders, and other nonprofit or for-profit corporations and
organizations in Alabama, Florida, and Georgia.
Access the archived webinar on the FHLB Atlanta website to learn more about how AHP
grant funding can benefit your organization. Contact the FHLB's Community Investment
Services department with any questions.

Lending to Small Businesses
to Create New Jobs
Analysis of a Recent
Mortgage Proposal
Research Paper Considers
the Role of Government in
Housing Finance

Departments
Staff
Subscribe Online
RSS
Economic Development
Podcasts

Disclaimer & Terms of Use : Privacy Policy : Contact Us : Site Map : Home
Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470 Tel. (404) 498-8500

Community Development

Attend the Cleveland Fed's Policy Summit on Housing,
Human Capital, Inequality June 28–29
May/June 2012

Join researchers, practitioners, and policymakers from across the country interested in
economic policy and development in low- and moderate-income communities at the 10th
annual Policy Summit on June 28–29. Held at the Federal Reserve Bank of Cleveland,
the summit will focus on effective strategies to strengthen and rebuild communities, with
educational sessions focused on the following topics:
Analyses of programs and policies focused on current conditions in labor and
housing markets
Education policy
Entrepreneurship
Financial and human capital asset building
Labor and housing issues in older industrial cities
Long-term unemployment
Loss-mitigation strategies for borrowers
Low-income housing
Program implementation, evaluation, and scalability
Reduced local government and community development budgets
Workforce development
This year's conference features Federal Reserve Bank of Cleveland President and CEO
Sandra Pianalto as the opening keynote speaker. Award-winning journalist Alex Kotlowitz
will provide closing remarks focused on addressing challenges in communities that have
experienced significant disinvestment.
Register today on the Cleveland Fed's website.

Lending to Small Businesses
to Create New Jobs
Analysis of a Recent
Mortgage Proposal
Research Paper Considers
the Role of Government in
Housing Finance

Departments
Staff
Subscribe Online
RSS
Economic Development
Podcasts

Disclaimer & Terms of Use : Privacy Policy : Contact Us : Site Map : Home
Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470 Tel. (404) 498-8500

Podcasts
Power in Partnerships: Addressing Workforce
Development Challenges

Related Links
Play (MP3 9:59)
Economic Development

June 2012

Podcasts

Tammy Edwards: Welcome to the Federal Reserve Bank of Atlanta's Economic
Development podcast series. I'm Tammy Edwards with the Federal Reserve Bank
of Kansas City. Workforce development issues tend to be locally distinct, and thus
require community-focused and cross-sector solutions. This point was reinforced
for us during recent workforce development roundtable meetings held across the
country as part of the Federal Reserve's Chronic Unemployment and Workforce
Development initiative. Indeed, collaborative local and regional efforts focused on
addressing workforce development challenges are gaining momentum, and
community-based funders are becoming more engaged. One such initiative is the
National Fund for Workforce Solutions, a coalition of local and national funders that
supports 30 regional funding collaboratives focused on advancing careers of lowwage workers through long-term employer engagement and job and career training
for workers. In this session, we explore the importance of public, private, and
philanthropic partnerships in addressing local and regional workforce challenges
and the early results from some of these collaborations.
Today I'm speaking with Damian Thorman, national program director at the John L.
and James S. Knight Foundation and chair of the Investor Committee for the
National Fund for Workforce Solutions.
Damian, thank you for speaking with us today.
Damian Thorman: Thank you, Tammy. I appreciate the
opportunity to be here today. The National Fund is
honored to join you for this conversation.
Edwards: Tell us more about the National Fund for
Workforce Solutions. What is your goal and what is
your approach for helping create scalable solutions to
local workforce development challenges?
Thorman: We are a fund of 12 national funders, and
I'm proud to say a blend of both traditional philanthropy
and corporate philanthropy. I mention that because it's
at the heart of what we are trying to accomplish, which is to bring business and
workforce development programs together so that, at the local level, we can have
robust partnerships that deliver training and support that results in more individuals
getting placed in jobs. The way we do that is really to put the employer at the
center of a lot of our work. We are trying to create regional funding collaboratives
or organize these workforce partnerships, develop strategies for specific industry
sectors such as transportation or health—health is our largest—and then we want
to build career pathways for those that we are training. So, not only are we training

individuals for new jobs, but we're also working with employees within the system
to try to make sure that they can move forward and move up the career ladder. And
then, of course, we coordinate the local workforce programs that actually deliver
the services in each of the local communities.
At the heart of this is really making sure that the partnerships support the work and
the needs of the local community. As you mentioned, we have over 30 sites around
the country and they are very unique, and we want to make sure that we are
meeting the local needs of each of these communities. And so we work very
closely with the local community to help them, that is, the local employer and the
local funders and the local workforce development programs work collaboratively at
the local level.
Edwards: What are the key elements of a regional funding collaborative for
workforce development, and how would a community move from concept to a
functioning collaborative?
Thorman: There are five strategies that emerged from our research and practice
that we found essential for a local regional collaborative. One is to create a regional
funding collaborative itself, that is, to bring together the funders, the government
agencies, and the foundations into a collaborative. Second, we would organize
workforce partnerships. Partnerships create long-term relationships between
employers and service providers. Thirdly, we develop strategies for specific
industry sectors. Fourth, we really work to make sure that these local collaboratives
build career pathways, so we want to not only train workers to come into new jobs,
but also to make sure that those that are in jobs can move up effectively through
that training program. And finally, we want to coordinate these local workforce
programs. We want to align all the existing programs and connect that with this
effort so that we're not leaving programs out and we're having the greatest impact
possible, and the resources are utilized in the best way possible.
The second part of your question was how do you get from no partnership to the
creation of a robust partnership I just outlined. It really starts with an important
building of relationships within the funding community and the local government
and civic infrastructure. As I said earlier, we really allow this model to be adopted
per community and so those players will differ, but we want to make sure that we
have the leading voices on this issue in a community coming together at the
beginning to really sit down and think through, do they want to go through and
make the commitment. We want to make sure that the employers and the local
workforce program is able and willing to implement that program in the local
community.
And then there's a four-to-one match, so we need to make sure that the existing
resources that are in the community can be put together in this collaborative, and
the new resources have to be dedicated; there's no way to do this without new
resources. In order to do that, we need to make sure that the local community has
the capacity to raise those dollars. And then finally, really and what it always comes
down to is, is the leadership both in the workforce community but also the employer
community to bring this collaborative together and to make sure that it continues to
function robustly.
Edwards: All that sounds like a significant undertaking, especially given the variety
of players. With respect to the regional collaborative, what are the challenges
you've seen in both the start-up and implementation phases?

Thorman: I think the largest challenge that we tend to face is that we're really
suggesting a really bold and innovative approach here. So, we have to really work
hard to communicate effectively to the local funders and to the local, primarily the
local workforce development system, that this new approach really is providing
them with resources to build on what they've already been doing, but they haven't
had the resources to innovate as much as they have. We're coming in and
providing these new dollars that allow them to build and innovate, and reach out
and create these cross-sector collaboratives, which really, ultimately inject more of
the employers' needs.
Edwards: Can you provide an example from a regional collaborative that
demonstrates the ability of these groups to benefit both job seekers and employers
alike?
Thorman: Take Philadelphia, which is one of our earliest and most successful
programs. Hundreds of workers have been served. More than 35 employers,
ranging from advanced manufacturing to food manufacturing, have also been a
part of the collaborative. Now, through the recession, many of the firms found ways
to steadily grow their businesses and workforce even though many of the other
folks in the region were struggling. This ties back to the need and the economic
impact that high-quality workforce training programs really can have, allowing
employers to have the skills they need to move through these tough times.
A recent study of that program showed that the partners, the employers, and the
employees really found that there was a very strong exchange of ideas and they
were able to gain a sense of camaraderie or partnership, they were able to
troubleshoot common issues, discuss policy changes that might be necessary at
the local, state, and national level to help facilitate this being implemented more
broadly and meet the needs more broadly of employers and employees. They were
also able to stay informed about industry trends, and compare training and
experiences and recommendations to fellow employers.
Edwards: Damian, thank you for joining us today.
Thorman: Thank you, Tammy.
Edwards: This concludes our podcast. We've been speaking with Damian
Thorman, Knight Foundation's national program director. Plan to attend our
upcoming national conference on workforce development titled "The Future of
Workforce Development: Where Research Meets Practice" on September 19 and
20 in Kansas City, Missouri. The Kansas City and Atlanta Feds are conference
cohosts. For more information and to register, visit workforce.kcfed.org.
Also, for more podcasts on this topic or others, please visit the Atlanta Fed's
website at www.frbatlanta.org. If you have comments or questions, please e-mail
podcast@frbatlanta.org. Thanks for listening.

Disclaimer & Terms of Use : Privacy Policy : Contact Us : Site Map : Home
Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470 Tel. (404) 498-8500

Community Development

Call-in Session on Economic Development Strategies
for Small Industrial Cities
May/June 2012

Join community development practitioners from across the country at 3:30 p.m. ET on
Tuesday, May 29, for a Federal Reserve call-in session, Smaller Cities that Think Big:
Lessons from Resurgent and Transforming Cities. The session will highlight research
conducted by the Boston, Chicago, and Philadelphia Feds on older industrial cities, with
a particular focus on smaller cities.
Presenters will share major findings from various research initiatives and engage the
audience in thinking about how smaller cities have addressed and overcome economic
and community development challenges. Presenters include:
Jeremiah Boyle, community affairs managing director, community development
and policy studies, Federal Reserve Bank of Chicago
Yolanda Kodrzycki, vice president and director, New England Public Policy
Center, Federal Reserve Bank of Boston
Alan Mallach, visiting scholar, Federal Reserve Bank of Philadelphia
Register for this interactive session and Q&A; at the Connecting Communities™
website.
This event is part of the Federal Reserve's Connecting Communities™ series, which is
a national initiative intended to provide community development practitioners, financial
institution representatives, policymakers, and others with timely information on emerging
and important community and economic development topics.

Lending to Small Businesses
to Create New Jobs
Analysis of a Recent
Mortgage Proposal
Research Paper Considers
the Role of Government in
Housing Finance

Departments
Staff
Subscribe Online
RSS
Economic Development
Podcasts

Disclaimer & Terms of Use : Privacy Policy : Contact Us : Site Map : Home
Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470 Tel. (404) 498-8500

Community Development

Federal Reserve Governor Speaks on Factors Affecting
the Housing Market Recovery
May/June 2012

The housing recovery hinges on reducing economic and regulatory uncertainty while also
improving credit availability for potential home buyers, according to Federal Reserve
Governor Elizabeth Duke. In remarks provided at the midyear legislative meetings of the
National Association of Realtors, Duke described issues impacting the availability of
credit for home purchases. She also noted the importance of reducing the shadow
inventory of houses in foreclosure. Duke encouraged policymakers to address difficult
decisions impacting the future structure of the mortgage market and stressed the
importance of addressing regulatory uncertainty, specifically on servicing, capital, and
underwriting requirements.

Lending to Small Businesses
to Create New Jobs
Analysis of a Recent
Mortgage Proposal
Research Paper Considers
the Role of Government in
Housing Finance

Departments
Staff
Subscribe Online
RSS
Economic Development
Podcasts

Disclaimer & Terms of Use : Privacy Policy : Contact Us : Site Map : Home
Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470 Tel. (404) 498-8500

Community Development

Why Did So Many People Make So Many Ex Post Bad
Decisions? The Causes of the Foreclosure Crisis
May/June 2012

Considering the prevailing optimism about the housing market during the recent housing
boom, decisions made during that time by homeowners and financial institutions were
not completely unfounded. So posits a new research paper by Atlanta Fed economists
Christopher Foote and Kristopher Gerardi and Boston Fed economist Paul Willen. The
paper looks at some of the factors at play prior to the foreclosure crisis, the effects on
housing-related decisions, and how policymakers might respond in the future. The paper
was presented at the Russell Sage and Century Foundations conference on Rethinking
Finance: Perspectives on the Crisis.

Lending to Small Businesses
to Create New Jobs
Analysis of a Recent
Mortgage Proposal
Research Paper Considers
the Role of Government in
Housing Finance

Departments
Staff
Subscribe Online
RSS
Economic Development
Podcasts

Disclaimer & Terms of Use : Privacy Policy : Contact Us : Site Map : Home
Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470 Tel. (404) 498-8500

Community Development

Signs of Rebuilding in Housing?

May/June 2012

A current Atlanta Fed SouthPoint blog reports that the housing market in the Southeast is
improving slowly. Staff from the Atlanta Fed's Center for Real Estate Analytics summarize
feedback from recent surveys and meetings with industry representatives. According to
their findings, sales of new and existing homes increased on a year-over-year basis in
April. The researchers note that improvements are uneven in terms of scope and size
and vary by market. Citing some reasons for the pickup in activity, respondents indicated
that attractive pricing, increasing levels of consumer confidence, and an overall
improvement in the credit quality of mortgage applicants were key factors.

Lending to Small Businesses
to Create New Jobs
Analysis of a Recent
Mortgage Proposal
Research Paper Considers
the Role of Government in
Housing Finance

Departments
Staff
Subscribe Online
RSS
Economic Development
Podcasts

Disclaimer & Terms of Use : Privacy Policy : Contact Us : Site Map : Home
Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470 Tel. (404) 498-8500

Podcasts
Closing the Gap: Improving Minority-Owned Small
Firms' Access to Credit

Related Links
Play (MP3 12:58)
Economic Development

May 2012

Podcasts

Harry Ford: Welcome to the Federal Reserve Bank of Atlanta's Economic
Development podcast series. I'm Harry Ford with the Federal Reserve Bank of
Chicago.
Some state and local programs can help to improve access to capital for minorityowned businesses, thereby increasing these companies' ability to grow and create
new jobs. Tim Bates, professor of economics at Wayne State University, proposed
this idea around adequate access to business loans and credit for minority-owned
businesses as part of the "Big Ideas for Job Creation" project. The project,
sponsored by the Institute for Research on Labor and Employment at the
University of California at Berkeley, and supported by the Annie E. Casey
Foundation, was a call to academics and economic development practitioners to
design jobs programs for cities and states that would lead to net new job creation in
one to three years. Bates's idea, "Regulatory Relief for Minority Owned
Businesses," is one of five winning ideas we are featuring in this podcast series.
Today I'm speaking with Tim Bates, from Wayne State University. Tim, thank you
for being here today.
Tim Bates: Thank you for the opportunity.
Ford: Tim, could you tell us more about your
"big idea" on regulatory relief for minorityowned businesses and what issues you
address with it?
Bates: At the crux of the matter is improving
small business access to credit, specifically,
small businesses owned by African-Americans
and Latinos. In terms of credit availability,
minority-owned businesses, in comparison to
small businesses generally, in seeking loans from financial institutions have three
patterns of results that are somewhat problematic from the standpoint of
maximizing the development and job creation potential of these firms. First of all,
relative to small firms owned by whites, the minority borrowers receive smaller
loans, for the loans they receive they pay higher rates of interest, and their loan
applications are more likely to be rejected. A simple example of these differentials,
the Federal Reserve System has created a database called The Survey of Small
Business Finances. And as I am looking over the findings of that particular survey I
know that minority business borrowers paid average interest rates of 9.1 percent,
substantially above the average 6.9 percent rate of interest paid by the owners of

white-owned businesses. The issue is why: Why higher interest rates? Why smaller
loans? Why a higher probability of loan application rejection?
The response of researchers is to try to figure out how much of this is explained by
the higher riskiness of the minority borrowers, and if higher risk doesn't explain it,
then what might be going on here? So researchers control statistically for risk
factors in a variety of ways. They envision two hypothetical business owners. They
have the same credit ratings. The firm and owner characteristics are similar; we're
talking about firms of similar size, similar age, with roughly comparable sales
levels, profits, owners' personal net worth is comparable. So for these essentially
identical businesses, the result we find—really after controlling for the credit risk
factors—is that the minority borrowers get smaller loans, they are charged higher
interest rates for the loans they receive, and they are more likely to have their loan
applications rejected.
An interesting related finding is that after we control for credit risk, a number of
black-owned and Latino-owned businesses, their owners claim that although they
need loans, they need credit, in fact, they have not applied at some point over the
last three years because of fear of rejection. OK, there is a need here, a need that
can create jobs in a very effective way, and the need is to treat firms with identical
risk profiles the same irrespective of owner race or ethnicity. Broadly, the need is to
ease the credit constraints that are limiting the growth of viable minority-owned
businesses.
Ford: Are minority borrowers seeking credit from the same types of institutions as
nonminority borrowers, and can you point to the related research?
Bates: There are some differences in borrowing patterns. I believe the most
obvious would be that minority borrowers often patronize banks owned by coethnics. This is most common among Asian immigrant-owned firms in major urban
areas. The pattern is one of Korean immigrant business owners borrowing from
Korean-owned banks, Chinese business owners borrowing from Chinese-owned
banks. To some extent, too, the same pattern is observed among African-American
business borrowers who borrow from black-owned banks.
A second example of differences, minority business borrowers gravitate rather
heavily toward banks that are highly active in making SBA guaranteed loans.
These are government-guaranteed loans whereby SBA takes 75 percent of the
default risk. These tend to be larger banks. Often they are banks with many retail
branches. In any major urban area, there's a grapevine whereby minority business
owners tend to be aware of the banks where they will receive a less positive versus
more positive reception.
In terms of the underlying research, this is not the type of issue that lends itself to
questions that appear in nationally representative databases. Much of the research
has been done by sociologists who've done case studies in cities like Los Angeles
and New York, and have talked to many hundreds of business borrowers.
Ford: Tim, your paper notes that minority-owned businesses already employ a
significant number of workers. How exactly does your idea create "new" jobs, how
many, and what types of jobs do you believe it could create, and what would be the
cost?
Bates: Not all types of businesses are credit constrained, so easing credit
constraints would hugely impact, really, only the set of minority businesses that is

most directly credit constrained. Two stand out, one is the construction industry and
the other is manufacturing.
If minority borrowers were treated by financial institutions essentially identically, in
terms of determining acceptance of loan applications and borrowing terms, the
result would be larger loans, lower borrowing costs, and more loans flowing to
minority businesses. In terms of job creation, actually, among businesses owned by
African-Americans and Latinos, over 60 percent of all the jobs that are created are
created by firms with annual sales exceeding $1 million a year. Very large firms,
firms in the minority communities, firms in credit-constrained industries like
construction, if we look at an immediate impact over the course of one year, the
immediate impact is estimated to be only about 14,000 to 15,000 new jobs. But the
impact over a three-year period is substantially bigger.
So, whereas initially there might 14,000 to 15,000 new jobs, by the end of a threeyear period we could easily see that at a range of 25,000 to 30,000 new jobs
annually. Now, nationwide that might not seem like a lot, but we're talking
specifically about minority neighborhoods and cities, particularly large cities. And
this process, once under way, would continue to build momentum with improved
credit ratings, greater credit access, greater firm growth, more firms being created.
So, we're not talking about a short-term solution that will have a huge impact, but
longer term it really could.
Ford: Tim, in your brief, you describe the Short-Term Lending Program run by the
United States Department of Transportation as one example of this type of
program. Can you describe any other successful applications of this idea, and what
are the results to date?
Bates: What is particularly useful in terms of the Department of Transportation
program is the easing of credit. Now, throughout the United States there are
thousands of local government entities, cities, districts, special authorities, that
purchase products from small businesses. At the local and state level the type of
products that government entities are most often purchasing is construction.
Minority vendors are very heavily involved in local and state government
procurement, and one of the major problems they have in being vendors to
governmental entities is that a lot of governments pay their bills very slowly. The
combination for a minority-owned business in a field like construction of taking on a
large job, performing the work, and then having to wait for a month to be paid by
the local government, this can easily create serious liquidity problems for the firm.
In other words, it might not be able to pay bills, and firms could possibly even go
out of business. Local governments need to adopt "prompt payment provisions,"
which a number already have. The city of Chicago is a large city that has an explicit
"prompt payment provision" for minority vendors to eliminate this type of problem.
At the state level, the state of Maryland has been a pioneer, and for over 20 years
an agency of the state government has been offering short-term working capital
loans specifically to minority-owned businesses that win local and state
government contracts. Receiving a loan is not automatic. The minority contractor
first wins the contract, then minority contractors have to establish that they do have
solid comprehensive accounting systems. If they meet these requirements, the
state agency will allow them to receive working capital loans that are tailored to the
size and duration of their contract with a state or local government in Maryland.
The program is quite effective in terms of the state agency collecting on its working
capital loans because the contracting authorities, for example, the city of Baltimore,

agree as part of the loan agreement to send the necessary loan repayments
directly to the state agency that has extended the loan to the minority contractor.
Working capital loans become available, illiquidity is therefore not a problem. The
minority vendors can concentrate on fulfilling their contracts knowing that they have
the working capital to do the job. Indeed, there are some defaults on some loans,
but the interest charged by the state to the minority borrowers more than
compensates for any of the losses due to credit risks, and pays the bulk of the
operating costs of the program as well. So, for minimal expense we have more
effective contractors, the ability of minority businesses to take on larger jobs, and
over time Maryland has found that the minority vendors receiving financing under
the state program gradually move over to bank financing after establishing a
successful record on contract performance and repayment of loans. The program,
therefore, has largely destroyed itself by the year 2012 because it is really no
longer needed. The constraint has disappeared and Maryland is known nationwide
as one of the states that has been most successful in cultivating large, viable
minority-owned businesses that have created lots of jobs.
Ford: Well, Tim, thank you very much for joining us today.
Bates: My pleasure.
Ford: This concludes our podcast. We've been speaking with Tim Bates, Wayne
State University professor of economics. For more podcasts on this topic and
others, please visit the Atlanta Fed's website at www.frbatlanta.org. If you have
comments or questions, please e-mail us at podcast@frbatlanta.org. Thank you for
listening.

Disclaimer & Terms of Use : Privacy Policy : Contact Us : Site Map : Home
Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470 Tel. (404) 498-8500

Community Development

Can Home Loan Modification through the 60/40 Plan
Really Save the Housing Sector?
May/June 2012

An Atlanta Fed Real Estate Research blog raises questions about a recent proposal
called the "60/40 Plan" that hinges on principal forbearance strategies as a way to
improve the housing market. Though principal forbearance can be a useful lossmitigation tool, according to Atlanta Fed economists Scott Frame and Kris Gerardi, the
effectiveness of such a plan depends on a variety of factors, including economic and
institutional conditions.

Lending to Small Businesses
to Create New Jobs
Analysis of a Recent
Mortgage Proposal
Research Paper Considers
the Role of Government in
Housing Finance

Departments
Staff
Subscribe Online
RSS
Economic Development
Podcasts

Disclaimer & Terms of Use : Privacy Policy : Contact Us : Site Map : Home
Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470 Tel. (404) 498-8500

Community Development

The Devil's in the Tail: Residential Mortgage Finance
and the U.S. Treasury
May/June 2012

The future role of the federal government in housing finance is a subject of recent debate
and discussion. Contributing to this dialogue, Atlanta Fed economists Scott Frame and
Larry Wall and Professor Lawrence J. White of New York University have authored a
research paper that provides an overview and assessment of recent policy proposals.
Presented at the Atlanta Fed's 2012 Financial Markets Conference, the authors
acknowledge that there appears to be a broad consensus to maintain government
guarantees for certain narrowly defined borrower populations. However, they note that
the role of the federal government in the broader housing finance system remains in
dispute, ranging from no role to insuring against only extreme or tail events to insuring
against all losses.

Lending to Small Businesses
to Create New Jobs
Analysis of a Recent
Mortgage Proposal
Research Paper Considers
the Role of Government in
Housing Finance

Departments
Staff
Subscribe Online
RSS
Economic Development
Podcasts

Disclaimer & Terms of Use : Privacy Policy : Contact Us : Site Map : Home
Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470 Tel. (404) 498-8500

Staff

Staff
Editorial Director
Todd Greene
May/June 2012
Articles
FEMA Online Tool Aids in Community
Rebuilding
Reinventing Older Communities
Conference Materials Posted Online
Discussion of State Small Business
Credit Initiative
SE CDFI conference July 18–19
Prepaid Cards Evaluated for Safety
Housing Rural Populations: Overview
of Changing Needs
Apply for Affordable Housing
Program Grant
Cleveland Fed Summit June 28–29
Power in Partnerships: Addressing
Workforce Development Challenges
May 29 Session on Lessons from
Resurgent and Transforming Cities
Fed Gov. Discusses Housing
Research Paper Reexamines
Foreclosure Crisis
Blog Posting Points to Housing
Improvement in the Southeast
Closing the Gap: Improving MinorityOwned Small Firms' Access to Credit
Analysis of a Recent Mortgage
Proposal
Research Paper Considers the Role
of Government in Housing Finance
Departments
Staff
Subscribe Online

Consulting Editor
Emily Mitchell
Managing Editor
Jeanne Zimmermann
Contributing Writers
Kyan Bishop
Ann Carpenter
Karen Leone de Nie
Emily Mitchell
Policies
The views expressed are not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System.
Printing or abstracting material from this Web publication is permitted if Partners Update is credited and a copy of the
publication containing reprinted material is provided to the Community and Economic Development group, Federal Reserve
Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, GA 30309-4470.

Full text of Partners Update (Federal Reserve Bank of Atlanta) : May/June 2012

FRASER