Community development finance: Responding to community needs

0:00:01: Good afternoon everybody, I'm Michael Barr. I'm the Dean of the Gerald R. Ford School of Public Policy. I'm thrilled to be here today for today's policy talk which is co-sponsored with our Center for Finance Law and Policy. Today's event is part of the Ford School's Towsley Foundation Policymaker in Residence program. Established in 2003, the Towsley program has enabled us to bring nearly two dozen diverse and high-profile policy professionals here to Michigan to join our faculty for a brief period of time. Our Towsley Policymakers in Residence teach, they mentor, they collaborate with other faculty, they become part of the life of the school, bringing the real world and all its complexity and its potential right here to the Ford School and the University of Michigan. The Ford School is honored to have our alum Dudley Benoit here with us this semester as a 2017 Towsley Foundation Policymaker in Residence. Dudley graduated in 1995 from the School of Public Policy. He later earned an MBA from Columbia and went on to forge an incredibly successful and high-impact career in finance and in community development. Dudley currently serves as the Director of Community Development Finance at Santander Bank.

0:01:24: He is also the board chair and on the credit committee chair of the New Jersey Community Capital, a CDFI that provides financing and technical assistance to build homes and schools in low income communities. For the past few weeks, Dudley has been teaching a course centered around lessons from the community development finance field, introducing policy students to finance, real estate development, affordable housing, and related policy issues. Along with his teaching, Dudley organized today's panel of community development experts from across the country to discuss the growing field and what the future holds. I'm gonna let Dudley introduce the panel and all the panelists in just a moment. The topic of today's discussion is near and dear to my heart. I've spent most of my time in government and in my research career focused on issues in community development and finance.

0:02:19: Starting back in the Clinton administration, the mid-1990s, working on what became the Community Development Financial Institutions Fund and the New Markets Tax Credit Program which, unfortunately, are today somewhat under attack in the policy space. Let me just say, if you have a question for Dudley or for the panelists, we're gonna follow our usual procedure here. Please write it on one of the cards passed out at the entrance. Our Ford School team will begin collecting the cards at around 4:40 PM. Two of Dudley's students, Allison Zimmerman and Gabrielle Horton, will sort through through the question cards with Tobin College professor, Mark Norman, and read your questions. If you're watching online, please send your questions via Twitter using the hashtag "policytalks." I've never tried that, but I'm told it's fun.

[laughter]

0:03:14: And with that, Dudley, let me turn things over to you.

0:03:17: Dean Barr, thank you so much. Thank you everyone for coming out, I appreciate it. I've been looking forward to this discussion for a while. I think everyone's bio is in the program, so I will introduce everyone, but I won't go through the lengthy detail 'cause each of these panelists are pretty accomplished people in their own right. I do wanna point that Lori Chatman from Enterprise Community Loan Fund who was supposed to join us, had a family emergency in the middle of the night and sends her regards, but could not make it. We miss her, but we will soldier on. The one thing about this panel and the field that I love is we've all in this, collectively been in the field for a while, and this field is one where people may switch seats, but once they get into it, they typically don't leave. So it allows you to make life... Lasting friendships and partnerships. I probably imposed a little bit on friends to come out here and help me out with this panel and I'm glad they all accepted. To my immediate left is Wayne Meyer, who is the President and CEO of New Jersey Community Capital, a statewide CFI.

0:04:22: But more than statewide, and those of you that are in my class tomorrow, he'll come in and talk about the work they're doing across the country in foreclosure prevention, but really a trailblazing Institution, and Wayne is the phenomenal leader and inspirer of minds to think about our communities and what needs to be done there. I've had the pleasure of serving on the board of New Jersey Community Capital, probably going back to 2003 and I just recently, so I should've updated the bio, just recently had to mandatorily rotate off of Wayne's board, but I was board chair for Wayne for the last five years and watched him do amazing things at his organization. To Wayne's left is Lela Wingard, someone who I worked with probably about the better part of 15 to 16 years at JPMorgan.

0:05:04: She just recently retired about a month ago, but she has been in the community development and CRA space, although she doesn't look it, for approximately 30 plus years and has a wealth of knowledge and experience, and she's been a great partner and friend to me. As I grew up in the business and as we grew our business and grew how we approached the industry and the field, and she's, as her bio states, has just been key in developing the field policies, really just has been an enormous help to all of us, not just at our bank, but across the industry in the work that we do. And then lastly, on the far left is Roberto Barragan, who I've known the least amount of time but who I've spent enormous amount of time with during that time. I think we first met... Five?

0:05:52: 2010.

0:05:52: 2010, so seven... Wow 2010, when JPMorgan was working with a lot of CFIs and looking to put grant equity into merging CDFIs that really, the way we use on the cuffs are really blowing up and doing more things. And Roberto's group was doing trailblazing things in the small business space. And we really wanted to support him and from there, a blooming friendship and a great partnership grew. So those are the panelists, so thank you for joining us. In the interest of time, we're gonna jump right in. So first question I have is for you, Roberto. You've worked at a CDFI that expanded nationally to bring small business lending, which is probably one of the hardest things to do in the community development space on balance sheet, non-government subsidized small business lending across the country. How were you able to actually make sure you're having the community impact all the way on the ground, versus there's so many layers to what we do?

0:06:58: As a add-on, I've been in, running non-profit organizations, some CDFIs for the past 30 years. And the days where you can have a plan, a program, a structure developed and then go in the community and try to deploy, try to implement, are days past. Unless you you understand clearly what the needs are of a community, what you wanna do will not match. And there's projects and programs and funds all across the country that have been great example of that failure. The fact is, is that to the extent that you wanna get something done, talking to the community becomes number one. And with a small business, that becomes a little more complicated. But for small business, it becomes the local chambers of commerce and the local merchant associations first. And I've implemented programs in Los Angeles, Chicago, Las Vegas, New York, Miami and San Francisco over the past 30 years. And in almost every case, my experience has been figure out first how they articulate the needs. And again, it's chambers and merchant associations are a good place to start with in terms of small business and understand what their members are talking about.

0:08:09: But because most of what I have done is in lending, the next becomes, of course, lenders, banks, credit unions, organizations that are already there trying lend or trying to deploy capital. And ask them the very simple issue, "Why do you say no?" And the case, unfortunately, at banks and credit unions, there's more nos than there are yeses, to small business in particular, enterprenuers, individuals trying to start up a business, everything from a small convenience store to a bigger manufacturer, "What do your denials look like? Why are you saying no to them? Even those who are completing, completing applications, and bringing in business plans, and potentially have collateral and maybe okay credit, why are you saying no? What are the issues and challenges in getting capital into this community?"

0:08:56: And government. Yes, a government's part of the equation, but frequently, I would seek input but not direction from government. I wanna hear from an elected official, I wanna hear from their staff, I wanna talk to the economic development managers in those communities to understand what was getting done and what wasn't getting done. What needs are being met, what needs weren't being met. What kind of capital was available be it government dollars, private dollars, foundation dollars and, frankly, understand from them as well, all the parties is to understand what they saw as not unilaterally and not definitively but what was their viewpoint and what's their opinion in terms of needs being met and not being met.

0:09:49: And finally, after all of that... My experience is that, if you design a program based on the needs, based on the challenges, that respond to lower credit scores, that respond to lack of equity available, that respond to no collateral, if a program that's designed to that reality, the potential success of the program is that much higher. Because you're not imposing your will, you're not imposing your funders' will on a community. You're saying, "Lookit, we have this amount of money to deploy from our experience and what we're hearing, we're gonna lose 10% of it." I developed a program with Chase that had 20% loss potential. It was designed that way. It had loan loss reserves to meet that. It had criteria designed for it and we implemented and were successful in that deployment because it was designed to meet both income-wise, credit-wise, ethnically, demographically, to meet that certain reality.

0:11:04: Just a quick follow up. To be perfectly frank, are most programs being developed that way?

0:11:10: No. Usually what happens is that there's some initiative put together by the SBA, the local government, local government, some big city, we're not getting enough capital in there, how do we do it? Most recently, SBA launched late in the prior administration a program to serve, basically, African-American populations in Baltimore and Latino and African-American populations in Los Angeles. And they talked about, "How do we increase procurement?" And, "How do we market our program better?" And, "How do we find capital?" It involved in their own conversation and own intellectual conversation about what the problems were. And they had no money. They had no money. A lot of conversation, but no money. At the end of the day, capital begets capital. If you're gonna have a conversation about a small business loan program, at least start with the fact there's some money available because if you don't start with that at the beginning, the rest is just conversation.

0:12:26: Got it. Thank you. Wayne, I'll turn it over to you. New Jersey Community Capital is, as we mentioned, a state-wide organization but your foreclosure prevention work has taken you to several other states: Florida, North Carolina, I think you're moving to Ohio. Talk about that work but specifically how do you fit that into the organization's mission? Because that really wasn't initially the organization's mission to really... They had to work in the communities of New Jersey. And then, how did you get your board comfortable with moving outside of your natural strategic catchment area?

0:13:02: Sure. Thanks, Dudley. First, let me say, it's really a privilege to be here today and part of what I hope is that we can interest and attract more young talent into the field of community development and that's certainly a goal at New Jersey Community Capital and I'm glad to talk to anybody who wants to after this.

[chuckle]

0:13:19: Secondly, I need to thank Dudley because he's been our mentor and an amazing leader at New Jersey Community Capital. He's one of those rare guys that if you mentioned his name around the country, Dudley, you don't even have to say his last name, [laughter] it's like "LeBron". I was gonna say "Madonna", but [0:13:36] ____ [laughter] First of all, let me just start by saying that the importance of community development organizations, financial institutions, development corporations to be able to partner and to be able to collaborate on a meaningful basis, and it's something we have not done well in the sandbox together over these years, but I see more and more of that type of collaboration going on. I think it's vitally important because in an age where we're working on more complex transactions among different asset classes, education, economic development, housing and the like, that we really need all the best type of talent to figure out how to do that.

0:14:20: It's also important if you think about how to allocate capital and how do you absorb capital effectively in some of this work, to be able to do that in partnership, I think, is really, really meaningful. And finally, it's around risk. As Roberto said, "How do you manage risk?" Let me just start by saying it's really important that we think more and more about how we partner. So at New Jersey Community Capital, we're a state-wide CDFI, we provide financing investments to rebuild low, moderate income communities around housing, around educational facilities, charters and early child care facilities, around community facilities, around economic development type projects, and really how we build safe and vibrant neighborhoods in the communities that we work in. But New Jersey as, probably many of you know, has had some real housing issues since the foreclosure crisis. I think we've been number one. We don't like to lead in this type of stuff, but one or two in foreclosures.

0:15:21: We're number one or two in amount of seriously delinquent mortgages. We have a high negative equity in our loan set we've done, and then we have these other indicators that we're the fourth highest cost-burdened state in the country. It drives us crazy when you think that you have all these houses that are frozen in foreclosure and you have people who have dire need of quality affordable housing. So at New Jersey Community Capital, what we try to do is, "Okay, well, how can we respond to this effectively?" So we developed a number of programs, we're a lender, that's what we do, so we lend to 100 non-profits in the state of New Jersey to acquire and re-develop housing, to repurpose it, vacant housing, foreclosed housing, as affordable housing opportunities. We started a non-profit real estate development subsidiary because unfortunately, a lot of the community development groups in New Jersey struggled and we've seen that, a lot of them have imploded. And that's an issue for another day, but we gotta figure out a way to rebuild the delivery system around community development in this country.

0:16:30: So we developed this really high performing real estate development company that developed lots and lots of housing in the state of New Jersey. But then if you think about that, we're always are lending to groups that are dealing with vacant housing, our non-profit real estate subsidiaries is developing vacant housing. So we wanted to figure out, "How do we get ahead of the problem, in front of the problem?" We created a program, which we call the ReStart Mortgage Loan Purchase Program. And the idea was simple: Mortgages in this country trade every week, all the private institutions, equity funds, hedge funds. We wanted to be able to buy mortgages with the goal of trying to reset them. To keep families in their home through mortgage modifications, and to be able to then settle the blocks in the neighborhoods that they're on. And by the way, when a house is vacant, it was an opportunity for us to redevelop it as affordable housing.

0:17:26: We became one of the first non-profits to buy mortgages from the Federal Housing Administration in bulk under what they called the Distressed Asset Stabilization Program. And as we were doing that, the state of Florida came to us. They said to us, "Would you guys think about bringing your program to Florida?" And it's nice during winter, [laughter] so we thought, "Sure." But it was a really difficult decision for our board, because we're a New Jersey based organization. That's what we do. But we thought about it differently in a sense that, A, as I went to back before, how do you share best practices? How do you collaborate and how does it fit into your mission? So, from our vantage point, it was a public policy imperative because there was a lot of talk around housing advocates around the country saying, "FHA, Fannie Mae, Freddie, you're selling our neighborhoods out to the hedge funds, the private equity funds." So how can you get more of the non-profits and units in government involved in this?

0:18:35: We ended up partnering with the state of Florida in doing that, but we divided what we call our North Star Guiding Principles. First was that it was mission and that we were advancing what we thought was a housing policy. Number two, we wanted to make sure that we retained a certain degree of operational influence 'cause it was reputational risk. We wanted to make sure that we were involved in doing that. Number three, and what Dudley told me all the time, protect the balance sheet, protect the mothership's balance sheet. Don't expose the core operations of our business in doing that there. And last, but it has to be financially sustainable, and that's a really important part of the work that we do is around financially sustainable.

0:19:21: So the outcome, I think, was successful, and since then FHA has made modifications to their Distressed Asset Stabilization Program where they now do direct sales to non-profits and units of government. I'd like to think it was part of what the work that we did. Fannie Mae has what they call Community Impact Pools. We bought 10 of them and we recently partnered with the state of New York and their Homes & Community Renewal, their FHA, to partner on buying another 400 mortgages and where they invested money in the fund to do that. And just this last week, Fannie Mae had the first ever Community Impact Pool where it wasn't just targeted to a geography, it was around multiple geographies. And the idea was to be able to bring in non-profits around the country to help to do that. They were hoping that we would be the lead counterparty on this transaction, which we were, and we ended up winning the bid which we're really happy about.

0:20:19: Now, here's where the housing policy comes in because we advocated, housing groups around the country advocated that we should be able to get a second look, if we didn't win this bid, because we're going up against equity funds, hedge funds, that if we don't win the bid, we put in a credible bid, we should have the opportunity to match. And we lost by 1%, but Fannie Mae had to come back to us and said, "If you guys are willing to match this bid, you get it," and we did. I think about that. Again, it goes back to it's affecting the housing policy, it's bringing and strengthening collaborations more importantly for us in New Jersey. We're keeping families in their homes and we're developing affordable housing.

0:21:01: I do wanna take a moderator's imperative here to toot Wayne's horn. What was done with this organization was trailblazing in so far as the only option you had in the past, if you were a owner struggling in your mortgage was to basically try to go back and forth with the bank and to a short sale or stop paying and hope they come to you and negotiate, and hope to God that something goes your way. That's not exactly the most efficient way of going about that. But for most people, that was really their only hope, and in New Jersey, where I'm from as well, unfortunately, we are a judicial state, so we probably lead the country in length of time to get through the actual foreclosure process as well, to get you to the share of sales. In New Jersey, Wayne, the average delinquency was what? People were delinquent 48...

0:22:00: Yeah, about 47 months was the average.

0:22:00: So people were delinquent four years on a lot of these mortgages before they can get through the whole process. So that's a long time and then you end up creating zombie communities. What they were able to do was basically an anathema and part of what Wayne isn't gonna talk about is a lot of his non-profit partners or colleagues were really reluctant to partner with hedge funds. 'Cause what Wayne didn't mention on these early funds and to this date, the equity investors oftentimes are hedge funds, really the big hedge funds that you would hear about all the time and they were anathema to partner with them because it was against their mission theoretically, which I thought helping the communities were the mission but that's a whole another conversation, and was able to see and make the board, and come to me and have the board see the bigger picture. It was like, "We have an opportunity to buy 500 loans at a time here, 300 loans at a time here, own them ourselves, have full control about how they get reset when they get sold, that's gonna be way more effective to changing communities versus trying to work within... " I'm not saying the people that do housing counseling are not doing good work. They are.

0:23:05: They're doing God's work. But your ability to affect those communities is a lot better if you own the actual assets and you get to set the strategy versus trying to go back and forth with Chase or Bank of America or the like. I just wanna make sure that that's not lost. Those of you in my class tomorrow will hear more detail about the work that Wayne and NJCC have done but I think that's the potential when we think about policy and impacting communities that these organizations have. Thank you, Wayne.

0:23:34: Lela, I wanna turn to you, and again, looking at impact, but from the bank side and thinking about the way banks' responses have changed over time. If those of you may not be familiar with the community development field, but it really started with the Community Reinvestment Act and I believe sometime in the early '80s, a bank was denied the ability to merge or open a branch or, I can't remember the exact details, because they hadn't followed the regulations of Community Reinvestment Act and that sent all the banks scurrying to set up these entities. But it wasn't necessarily a thoughtful or strategic response, it was a defensive response. So Lela, if you could talk a little bit about that history.

0:24:16: Sure, thank you. And it's a real pleasure being here, being on the campus, and being in this forum to talk about policy issues that affect lower income communities across the country, and to be on a panel with folks that I've known for a long time who have had a huge impact. And I think, Dudley, you're absolutely right, that the CRA was passed in '77, the HMDA data first became public a few years afterwards and community development was really, at that point, reactionary. We were responding to what was expected of banks by the regulatory agencies, we were responding to the most vocal advocates amongst us who would engage in protest, that ranged from asking the agencies to deny applications for things that the banks wanted to do to stimulate their own institutional growth, or that ranged from being on the sidewalk outside your building and disrupting your daily business operations.

0:25:20: And at that time, in addition to being reactionary, a lot of us in the industry thought of community development more as charity than we did as business. We were responding to the organizations who said, "We need money, we need funding, we need grants to do x," and we were being reactionary. Fast forward to today, we are much more collaborative, we're much more strategic and much more focused on a double bottom line, if you will. How do we invest in things that deliver against the community development mission to strengthen communities, but that are also safe, sound, deliver a return for our institutions and have a strong impact in communities?

0:26:20: Housing has long been the focus of the CRA, but over time, it evolved to incorporate small business and economic development and community services. And what we've learned by focusing on the impact of our investments, is that if we invest in housing alone, you put people in houses but you still have to be faced with the possibility that they can't afford to stay in those houses. Jobs are important, job training is important, small businesses and economic development is important, education is important, having basic services that make for a vibrant community: Grocery stores, for example. There's lots of food deserts across this country because no one has invested in opening stores that sell fresh food or an assortment of food in those communities, which result in health problems. There's this is whole circle of life that needs to be invested in and maintained over time to create a vibrant community.

0:27:27: I think one of the big things is that over time we've become much more strategic about where we invest, who else is investing in those communities, how can we collaborate not only with each other, but with the community organizations. And as Roberto was saying, we can't as an institution or as an industry come up with solutions on our own. We have to talk not only to the community organizations, local government, we have to talk to each other. This is a competitive business for the financial institutions, but it's also a collaborative business. And where some of the deals are so sizeable that we have to work, not only with non-profit partners, but with other industry partners to make the deals a reality and to have the impact that will be sustainable within the community. I think we've hired more talented personnel, we have hired personnel who are devoted to this field, who don't wanna do anything else, who want a job and a career where they can not only do good, but do well. And we're investing in that as a discipline. We're investing in measuring the outcomes and not just a numbers game, but the real impact on how it's changing the trajectory of life for the children growing up in the communities, for the families that reside there and their mobility. And it's very analytic to do that and it takes a period of time, your investments have to be, in some cases, for decades, as you start to see the change.

0:29:14: The other thing I will say as a final remark is that, again, we can't do it alone. And non-profits are often trying to accomplish major things without having a real investment in themselves. One of the things that's a really important element of community development, I think, that we've learned over time, the industry has evolved to, in conjunction with the non-profit community, is building the capacity of those organizations that may be doing work that for some reason or another, banks can't do or won't do. How do we build the capacity of those organizations so that they can excel at that work?

0:30:02: Thank you, Lela, and just to piggyback on that, if those of you who are not familiar with how the industry started, but the industry started almost as a, for lack of a better term, an arranged marriage. You had banks that had to do this stuff for regulatory reasons, and you largely, on the other side of the table, had community organizations that were not in finance by any stretch of the imagination, but they were in the business and passionate about improving their communities. And one of the few ways that they can get funding for that, because there weren't a lot of people that are just gonna fund community organizing, was through financing Low-Income Housing Tax Credit developments and financing affordable housing, and those developer fees and income would then finance the other parts, the mission parts, of those organizations. So you started out in the field where you really had bankers and community organizers working together and winging it and trying to figure it out as they went along, to where we sit today where there's a very sophisticated community development finance field and like I joke to my class folks, it helps a lot of lawyers and accountants send their kids to Harvard and Yale and Michigan.

0:31:05: That wasn't probably what folks thought was gonna happen when the field started, but that's what happens when you create a multi-billion dollar industry, and that's what the community development finance field is today. And that's why I wanted to have this panel really talk about how do you make sure that these needs are being met at the community level, because the numbers can get dizzying if you're thinking about how much we do at banks. My bank recently made $11 billion commitment over five years, so how does that actually affect the people on the ground? It takes a lot of work and effort and there's a lot of things that go into that. I wanna come back to you Roberto. As you know, there's been a lot of talk about entrepreneurship, small business, and you referred to that some as... But recently an increased emphasis about making sure that we're helping small businesses grow and bloom, and in the low to moderate income areas that we all spend a lot of our time working in, there's obviously additional barriers and that's making it harder. Obviously, you talked about getting in there and actually understanding needs, but what are some of the other things that you've seen that have worked in these communities?

0:32:11: Well, I think some of you may be familiar with the program from the Small Business Administration called Community Advantage. Community Advantage is an attempt, post-financial crisis, to give community development financial institutions, which that's where my experience is, the ability to do an SBA guaranteed loan. And the magic there is, is that many banks use SBA as a product to provide additional collateral support to make a small business loan, and banks can do these loans up to $5 million. A number of years ago, the SBA gave CDFIs the ability to do Community Advantage lending, which is allows us, a non-profit organization, to make a loan with a 75%-85% guarantee from the SBA. The magic behind it is it allows us potentially to increase the size of credit bucks, to do a loan to a small business that has cash flow but very little collateral, and at the same time, because, again, the magic of the Full Faith and Credit of the United States government, be able to sell that guaranteed portion at potentially up to a 10% premium, and create another level of income or generate additional income for the non-profit organization. It's a program that still is in its infancy. They did $100 million last year, that pales in comparison to bank lending in that product, but it's a step in the right direction.

0:33:29: Microlending, microfinance, an area you've probably been familiar with, is an area where there's been lots of conversation about its international focus, Muhammad Yunus and Grameen Bank, and how microlending has allowed very poor households in third world countries to increase income size. In the United States, it's been something that has had both tremendous success and some challenges. More recently, microfinance is seen as something that is no longer relevant, but in fact it is. It continues to be a major way for underserved populations, particularly African-American, Latino small business, or entrepreneurs to get business started and to move them in the direction of real small business lending. Most recently, and talking about CRA, HMDA and the collection of HMDA data allows us to know what a bank is doing in underserved communities, particularly in terms of demographics. We have not had that similar tool within small business. There is no requirement for a bank to identify what level or number of applications they're taking from minority businesses or approving, and that has been prohibited by something called Reg B out of the Federal Reserve.

0:34:46: Most recently, under Dodd-Frank and with the creation of the Consumer Federal Protection Bureau, is a provision that's called 1071 that allows for the collection of that kind of demographic data for small businesses from banks. I personally have been involved in that fight for the past 20 years to get that information because as a small business lender that would change the game. That would basically put banks and all financial institutions under some level of requirement to at least provide the data and then be able to respond to the inadequacies in the data. As you've seen, this past week, CFPB has been in the news quite a bit; there are supposed to be changes there and I'm praying that doesn't necessarily affect 1071. Lastly, one of the things that financial institutions have increasingly begun to understand, and Lela spoke to it very, very clearly, and in fact, Chase is probably the leading financial institution behind it, is that strategic investments by financial institutions at dollar amounts that are significant can create wholesale change in organizations and in communities.

0:35:50: The days where a 1,000 here and 2,000 there and 5,000 there to a non-profit organization doesn't move the needle, and hasn't moved the needle for the past 40 years of CRA. The fact is that needle will be moved and has been moved in a number of situations, including my own with Dudley seven years ago that allowed an organization that was $10 million in size in 2010, to go to $75 million over six years by putting equity and strategic investment into an organization and leverage it and grow it in a similar way as you do with a bank.

0:36:28: Dudley, could I just chime in here? Another thing that I would say characterizes, and Roberto's comments made me think of this, characterizes the evolution of community development is, when I think back over the years, a lot of programs and lending programs in particular, were started in specialized units within financial institutions, community development groups. Because mainstream businesses within the institution didn't think they were viable, had no interest in them, they didn't meet the returns. And what we learned by offering these programs within a community development group and tweaking them was that we could do a sustainable business and then the program, the lending program, the product, would be mainstreamed into our traditional business lines where it could be deployed more broadly across geographies, have a much greater impact. So in a way, community development groups provided an opportunity to do some R&D in the community development field and find a way to deliver products and programs to underserved communities in a way that was palatable to the broader organization.

0:37:40: I think we have a few minutes left, so I'm gonna ask one more question and any of you can jump in. As you guys know, many of the leaders in the industry that started, they were either founders or instrumental in the growth of industry are tapping out, retiring, leaving for whatever reasons. And we have a great opportunity to refill those seats with the next cadre of leaders. How should the field be focusing and working on increasing diversity in leadership, both at the organization level and the board of directors and the whole, the universe of the industry?

0:38:19: That is an amazing question because it's probably the most critical question facing the community development field, at least I know in New Jersey. It's ironic right after the '60s we had this whole group of people that created the community development movement, but it seemed like there was a hiccup in generations or half generations where it didn't seem like many people were attracted to the field. But now, we're seeing a turn... At New Jersey Community Capital, one of the major goals we have is how do we attract and retain talent in the field? I love when I come to my office and I see 10 bicycles, we got a lot of young [laughter] but really, amazingly talented people, amazingly talented, incredibly gifted people. So how do you do that? First of all, I think it's around the culture you create in your organization around that and embrace that great decision making and innovation comes with diversity. I think we have a great diverse board and I think it starts with that.

0:39:19: And then I think one of the things that we have done, we've developed a fellowship program at New Jersey Community Capital where we used to have a housing scholar program in the state and it was done away with over this last eight years with past administration, but we picked it up and we continued to try to identify diverse talent into our organization. So that's one way. And then it's identifying those emerging leaders and putting them on a career path that really maximizes their potential through training programs, management programs, professional development programs. I'm not kidding when I... I deeply believe it's probably the most critical question facing developing field is, how do you show people that they could make a good living? And it's up to us and incumbent upon us to do that, to be able to demonstrate that but also have a career path that's meaningful. I think it's a great question.

0:40:18: I'm an example of someone who's never worked for a bank. I basically started after business school at Berkeley, I basically went right into executive director of a very small adult education, vocational education, non-profit organization. I got the job because I'd actually been invited to be on the board of directors while I was still in school. I got on the board of directors and... First of all, I would encourage you, day one, there's no reason to wait to be on a board. There's many non-profit organizations there that cover the entirety of human experience and needs. If you have an opportunity or seek an opportunity, get on the board of directors. It adds to the resume, and the fact is, is that experience on a board... And these organizations are always looking for young, smart people to be on the board.

0:41:04: They're looking for them, they want them, because they need them in order to grow their organization. They need the brain power and I'd encourage you to do that. I ended up being their executive director only because the guy that was in the mix ended up getting fired two days before [chuckle] and the executive director who was retiring and moving elsewhere had to find somebody quick, and looked around and said to me, "Hey, I know you came out of business school, don't you wanna make $24,000 a year and work for a non-profit organization?" [laughter] And I was looking at my school loans going, "Really?" That was many years ago, salary ranges change, but the fact is that, particularly in the CDFI world, I'll tell you, in the CDFI world, we're about numbers. We're doing housing, we're doing small business, we're doing real estate, we're doing commercial development. We can't attract talent unless we have realistic salary levels.

0:42:00: And they exist within the CDFI industry. They actually do exist. So when you hear about, "Okay, working for non-profit, oh my God, it's going to be poverty wages and I can't pay my school loans." The fact is, that's no longer the reality of the non-profit field. And there are great opportunities that extend from being on the board, all the way up to working and more importantly, to leading.

0:42:25: So $24,000 was a lot of money back when Roberto... [laughter] So one is I think is important in opportunities like today that we communicate that there are really great opportunities. One of the things that's really interesting, when I look at a number of the organizations, community organizations, the strongest, the viable, most impactful organizations, they are led by people with MBAs. They're led by people who have law degrees. They're led by people who have an interest in strengthening communities but they have fantastic credentials. And there's a passion there. One of the things about the field of community development is there's very low turnover because the work is so rewarding and you can be compensated fairly. I think it's incumbent upon us, including you, who may have an interest in this field though, to be strategic about how we think about it.

0:43:30: As Roberto said, to look for opportunities, to get some exposure, to get involved. One of the most valuable things we can do is get involved earlier as opposed to later in a variety of organizations and activities, so we can gravitate towards and identify those that really strike a cord with us. You're gonna weed some things out, and similarly, the organizations are going to ferret some people out and ferret out the best talent. The communities that are really benefiting the most from community development are very diverse. And so having diversity of all types in the organizations that are helping to solve the problems will help lead to better solutions for the communities and more sustainable. And I think that's something we should think about and keep in mind.

0:44:22: Thank you. I think we used up our time here, so I think it's time to Q and A.

[pause]

0:44:36: Hi, I'm Ali Zimmerman. I'm a dual Master's of Public Policy and MBA student here, in my final year. And I'm very interested in the work that you do. I came back to school to learn more about the intersection of policy and business and how we can do good and improve social outcomes by working with the private sector after several years working in the non-profit world. Our first question today, I'll start with... This is for all of you: "Can you talk about specific aspects of the proposed tax bill that will impact your organization?"

0:45:16: Well, I guess I'll go first on that one. Part of my job is to originate Low-Income Housing Tax Credit's investments for the bank. For those of you who don't know, the Low-Income Housing Tax Credit is probably responsible for 95% of the affordable housing that's built in this country every year. As the name denotes, it is a tax credit, so if you take the tax rate from 35% to 20% you're essentially reducing the value of the credit, what's that, 66%? John Chamber's up there, my math was never good, but whatever.

[laughter]

0:45:51: So that's a significant hit. Another piece of that was that the House version removed private activity bonds. And I can't remember, I think it's one of the Republicans in Texas really never liked private activity bonds because he didn't understand why taxpayers had to subsidize all these stadiums and things of that nature, which I tend to agree with, that are being given taxes and financing. He didn't understand why that... But the part that they don't recognize or ignore it is that about 40% of the affordable housing due to LIHTC program uses private activity bonds. So those are just two examples of how they would have a significant effect on the industry.

0:46:38: I should have printed this out before I came, I meant to, but if the House bill went through, I think, it would reduce production, I think, approximately 40%, I think the estimates were. A significant amount of effect on the industry. And then another one is, and I'll stop, is the New Markets Tax Credit, which is something Dean Barr worked on when he was in the administration. That is a powerful program that's been responsible for not only producing great projects, and NJCC's gotten several allocations over the years and it would hurt projects, but it also hurts non-profits, the CDFIs, because those projects are one of the few ways that CDFIs and other non-profits are able to get unrestricted fee income in significant amounts, so it'd be like a double whammy. And for everything I'm seeing and hopefully this will change, it doesn't appear that the New Markets Tax Credit will survive either with these bills. Low-Income Housing Tax Credit will survive, but it will be diminished unless there's some last minute change to what's been proposed.

0:47:41: And Dudley, it might go without saying but the Low-Income Housing Tax Credit, when you talk about that it's the primary source of equity for affordable housing. That's affordable rental housing.

0:47:52: Affordable rental housing, yes.

0:47:53: That's for folks who aren't gonna own their own home. But they're renters and that's really gonna hurt.

0:48:01: I totally agree with Dudley. Also, the historic tax credits are another program that's in jeopardy under the tax bill but the private activity bonds, at least in New Jersey, with the elimination of tax-exempt private activity bonds, would be devastating because that really, in essence, eliminates the 4% tax credit for low income housing projects. We hit our volume cap every year and to eliminate it, I just don't even know how much it would really diminish our ability to develop affordable housing. The other thing, less so, is New Jersey is a high tax state and so the elimination of the state and local tax deduction would obviously have an impact. They're gonna cap property taxes at $10,000, at least, I guess it's gonna go to reconciliation. Not so much in the low income communities, but as we think about fair share housing and trying to bring affordable housing into higher opportunity areas, which is an important discussion as well, I could see that also having an impact.

0:49:09: And there's also a cascading effect. I can't remember if they cap charitable donations but when you're capping charitable donations, capping deductions folks can take, especially in high cost areas, that's gonna inevitably have an effect on how much folks are donating to non-profits and the like, so it all fits together.

0:49:30: I would also think that the personal income tax deduction, the property taxes, housing taxes, would have a huge impact and not only in high cost states. One of the reasons I'm really concerned about that also is oftentimes people think that the only people who live in lower income communities are lower income people, and it's a slippery slope because then, in some cases, when non-low income people are buying in lower income tracts, you're talking about gentrification, but what we want is not to have concentrated poverty. We wanna have mixed income communities and it's not just the communities that will suffer but the families. And so this limitation, which will be permanent in the tax code, would be really concerning to me.

0:50:29: Can a non-panelist add to your list?

0:50:31: Sure can. Yeah.

0:50:32: The panelists, I think, have done an exceptional job describing the play space in tax but there are also income effects and health effects in the tax code that flow through disproportionately low income communities. If you look at the elimination of the ObamaCare coverage that is proposed in the tax legislation, the Congressional Budget Office estimates that it would affect about 13 million mostly low and moderate income households and there would be quite significant effects in the community. Similarly with triggers on Medicare and Medicaid under the sequester, under the trigger provisions, those would have disproportionate affects on low and moderate income communities.

0:51:24: Good point.

0:51:27: Alright, the next question. Well, before I begin, just wanna introduce myself. My name is Gabrielle Horton. I'm a second-year Master's student here at the Ford School of Public Policy. Thank you all for joining us. Thank you, Dudley. I promise that first question was not us trying to cheat on our memo that's due tomorrow. [laughter] It was from the audience. But a bit of a follow up to that question: Wayne mentioned new delivery systems and, Dudley, you also hinted at the complexity of current systems so if the tax reform does go through, what do these new systems actually look like? If one of you wanna sort of take that, that would be great.

0:52:01: I think the simplest part of that is, on the Low-Income Housing Tax Credit side, it just means more subsidies are gonna have to come from state and local governments. The program is inherently embedded with subsidy, but that subsidy gets spread out in so far that the more competition, the more valuable the credit is, the more private equity, private dollars are gonna come in, too. And if you devalue the credit, which would happen under this proposal, that means there's gonna be less equity per project, so the government's gonna have to do less with the same amount of subsidy dollars. So we're gonna have to spread those dollars around to fewer projects, which is unfortunate but it's probably the only way the market will clear. That's the biggest one, in my mind, that's gonna happen. State governments are gonna have to do fewer projects with the subsidies that they have.

0:53:00: States are gonna have to do with less resources and they're in a starved environment as it is, and to give you a sense of that... And part of it's politics but part of it is appropriations. In 2005, I think, we dedicated New Jersey $600 million for affordable housing programs. Some of it came from the federal government through the Home Program and CDBG and others. Last year, New Jersey dedicated $50 million. In the meantime, 37% of our renters are severely housing cost burdened, meaning they spend more than 50% of their income on housing, which crowds out things like food and health and things of that nature, so it's that trickle-down effect that non-profits have to really rethink the way they do business. They have to become more entrepreneurial. Can't rely on subsidy programs and we need them. Don't get me wrong. But if we're gonna sit around and wait for a program, we're not gonna get much done, so it's gonna really, I think... It does have a big impact on, I believe, on our non-profit community development partners, who develop a lot of this work.

0:54:13: Can you speak about how your institutions, specifically, are addressing food justice and food access? It's on our mind especially as we're thinking about Puerto Rico and some of the recent disasters.

0:54:29: When I was at Chase, we pioneered with the group called The Reinvestment Fund in Philadelphia, pioneered the first... Or coined the term Food Desert, this was 2003, I believe. There was a state senator in Pennsylvania that came to the Reinvestment Fund and said, "Look, I just got the legislature to give you $5 million grant so you can start going across the state in places that don't have proper fresh food and things like that, to build grocery stores." No one ever thought about it, no one had ever done it, and I get a call from Jeremey Nowak and Don Hinkle-Brown at that time, and said, "Look, we need you to help us put together finances." So, we took that $5 million and we leverage that into a, I believe, a $35 million fund, I can't remember now, it's too long, but I think that's right. And that's where we started with that.

0:55:24: Fast forward to a few years back, and the First Lady of the United States, Michelle Obama, made one of her key initiatives this whole thing about healthy foods and a lot of the industry has jumped on that and they're working on that, to the point where we had a big launch event at the White House once. Again, at Chase we helped lead a $100 million fund with The California Endowment and Capital Impact Partners and some others, to do fresh food grocery stores across California. The initiative wasn't as successful as we wanted it to be, but it was still a big impact, and I think the treasury, the CDFI Fund, now gives CDFIs dollars and has a program specifically targeted at fresh food.

0:56:10: So you see a lot of CDFIs, banks, and others partnering on that. It went from being a pioneering idea, The Reinvestment Fund, to being a part of the infrastructure of the CDFI industry. I think that's what's so great about the work that non-profits and CFIs are doing, alluding to what Lela talked about what happened with the banks internally. A lot of times, we would do R&D internally for products that became mainstream, but products within the banks. Same thing's happening for CFI. CFIs may yet sometime or another R&D or program that become something mainstream across their industry as well.

0:56:47: One of the things I admired a lot about that program, the Fresh Foods Initiative and responding to food deserts, is that it was a permanent solution, it was an investment in communities in some cases that hadn't seen a grocery store ever, that only had bodegas or corner stores, or that hadn't had a new retail outlet for food shopping in decades. A lot of times what we have, and it's very important but it's not a permanent solution, is a response to a specific disaster, which comes in the form of philanthropic dollars and mobilizing volunteers to help. But after the emergency has passed, we don't have a long term solution to providing food, to providing jobs, to providing a neighborhood economic engine. And so having an initiative like the one that Dudley spoke of is critically important to the long term viability of communities.

0:57:54: And I think that's an important piece that I didn't think about, because the response to Fresh Foods did that. Those stuff that Wayne and his team is working on, similarly, they're trying to develop not just... Because the work that Wayne's doing actually resulted first out of Superstorm Sandy, which was obviously a big issue on the East Coast and a lot of folks approached New Jersey Community Capital to do some emergency work about, "What can you do?" And that was, I think, part of the germ, not completely, but part of the germ of idea for the other issue about, "Well, let's try to figure out how we purchase things in bulk and having a larger effect." That's a very key part of the work that we're trying to do in this industry.

0:58:36: Just briefly, the food issue, I talked at the beginning about partnerships and collaborations and we've partnered with the Reinvestment Fund on a number of food shop, supermarkets, food warehouse distribution centers, using our New Market Tax Credit. But it is a complicated issue. I live in a moderate, low income community and every morning where I'm going for my coffee, I have kids on my block buying Doritos and it's 6:30, I'm like, "Guys, you gotta need to eat that stuff at 6:30?" I think it's part in the schools as well, and so, we'd financed a lot of charter schools and a lot of the charter schools have nutrition programs in their schools. I think education's a key part of nutrition and health, and we can finance some of the place-based things around that. One of the initiatives that we're beginning to work on and germinate is around... There's a bodega association being formed in Dudley City, in Jersey City around how we can potentially finance more fresh fruits and vegetables. There's, I didn't realize a hundred bodegas in that area alone, and so, it's an evolution. In terms of disaster recovery, when we did our Sandy recovery, FHA did the first ever direct sale where they ended up directly selling to us 517 loans in the most impacted Sandy recovery areas. It was the first time ever direct sale. They charged us a premium, but it was...

1:00:05: 'Cause O&B made them charge you.

1:00:07: Yeah. Ops management and budget made a premium. But we thought it was important enough to control the asset or [1:00:12] ____ somewhere else.

1:00:13: I think another common theme we're talking about here is getting away from products and things, and thinking about systems, 'cause the fresh food, what's happened, evolution of how the industry works in fresh foods, you're thinking about, "Okay, you can't just build a grocery store, you have to have a distribution centers in places that make sense." In the past, if you told someone, "Community development organization and non-profits should help fund a distribution center," they're like, "Well, that's not community development." But yeah, if you're trying to build systems that change people's lives, you have to have these connectors, you have to be able to fund infrastructure as well. Some of the folks are doing things. I know Detroit they're doing it and some of the other [1:00:50] ____ Living Cities, they're doing the hydroponic farming systems, they're helping folks use abandoned warehouses to grow lettuce and all those type of things. So, that's another way the industry has evolved, thinking about systems versus just thinking about this is housing, this is small business or whatever. We really, I think, have changed, not enough yet, but I think we're getting to a place where we're thinking about the systems that help support communities.

1:01:16: Alright. This next one is from Twitter, and I love Twitter, so I'm super excited we got some posts from there. Someone said, "Passion is great, but how do you evaluate whether local non-profits truly represent the community?" And I'm thinking about this in the context of how we're talking about making sure bodegas, which I also really do love, have access to fresh produce. How do you know that that community wants to keep their bodega, but they also want all these other amenities that obviously lead to better health outcomes as well. And also thinking about your organization scaling nationwide, Roberto, how do you identify these local partners when your base, for the most part, has been San Fernando Valley? How do you know that someone in Iowa or Massachusetts is really connected to the communities that they speak about? So, if maybe one or two of you all could speak about some of the mechanisms and tools you actually use to evaluate that authenticity.

1:02:07: We went into Miami. I spent a number of months talking with the SBA, talking with pretty much every non-profit I could identify that had a handle on small business, just talk to them all. Didn't come in with a preset notion in mind, just talk to them. And got a sense of what the challenges were, who was doing the lending, who wasn't doing the lending, understanding that there was a great micro-lender in the community, so they didn't need me in there to do microlending. That they basically had other SBA and lenders, what they really needed was that $50,000 to $250,000 loan that a bank couldn't do, and that's what we focused on. We were asked by a bank to do a capital expo in Las Vegas. Went to Las Vegas, started to meet with all the different non-profit organizations, and in the middle of one conversation, I had a non-profit who simply said, "Lookit, we're out of money, we're gonna close down, will you acquire us and bring us into your organization?" And that came out of a organic conversation in terms of what was going on in that community and what is needed.

1:03:10: The thing is, too, is that... I always get weird about the word "represent." I would never say that I represented the San Fernando Valley, much less the state of California. I consider myself as a technician. My job is to respond to a need. There's a need for capital access, there's a need for small business lending, I can speak to that need. And I can basically help provide products and programs that speak to developing entrepreneurs and growing small businesses in communities. That's, I think, more the role for non-profits. I get really scared when you get non-profit organizations who start talking about, "I represent this or I represent that," 'cause that's not the mission of a non-profit organization. The mission of a non-profit is to create change in a certain area of human need. That's our responsibility, that's why we were created. And the fact is non-profits, and I go back to what Dudley said and reminded me over and over again, non-profit is a tax exempt designation. Beyond that, the organization is created based on a mission to serve a particular need. And to the extent we can do that and create impact, which increasingly is becoming more and more important and more and more questionable, then we're being effective and then we're really speaking to having accomplished our mission.

1:04:25: You should talk about...

1:04:26: Yeah. I was at a meeting with a president of a foundation in New York a while back, and she told me that her view was the community development movement was dead and needed to move on. I obviously totally disagree because I still think local community development corporations work in markets where the private markets don't wanna go and government's incapable of going. At New Jersey, what we try to do is we take a comprehensive review of how we work in neighborhoods. We don't do lot of one-off stuff, we work with groups that look to comprehensive... We think about it comprehensive around housing, around education, around food, around economic development. In order to do that, the groups... And we do have a couple of really good programs in New Jersey, the Neighborhood Revitalization Tax Credit program, which really forces the non-profit groups when they get resources, to really dig deep around resident engagement. And there's a lot of that type of planning that goes on. And those are the best outcomes in terms of neighborhood revitalization, when it comes from the community and the residents. And we do have a lot of that in New Jersey, I'm just concerned more that the sector itself is weakening, so they're not gonna be able to do as much as they can and should be able to do.

1:05:44: And I think a key piece of it is very simple: Listening. The work that Wayne is doing there, when I was still board chair, they would come to me, "Michigan called or North Carolina called or Florida called and we wanna go into that state." And my question was always, "Who are we gonna partner with?" Because you never wanna be parachuting in from another area to do work where other people have been for a long time and I think that's one of the reasons the programs have been so successful 'cause we were coming in to partner with folks who were on the ground, had better expertise, and being humble about it and understanding, "Look, I don't know everything about what's going on here. So I need someone that does and that's been here, that's been engaged, that know where all the pitfalls are and know who the good partners are." It's having the humility to ask and the ability to listen, that I think is really important in getting to that place. Did you have...

1:06:35: No, I would agree. And having people on the ground in various communities. I have the good fortune of working for an organization that had a presence in two dozen states and I've never seen a CRA evaluation didn't say that affordable housing was a critical need in that community. But they also go into other needs, and those needs might not be that you... Some cities have wonderful education systems, and others do not. Some have a thriving small business environment and local economy, and others do not. So you really have to have people on the ground and have a process and a system in place to get the input, to filter through it, to prioritize, to align it with your institutions, business objectives, your strengths, I think, and narrow it down, because no individual institution is gonna be all things to all people, or to all communities. So looking at what are the needs, how do they align with your business objectives, your business capabilities and strengths, and where you can make an impact and where there's a need where you're not strong, do you have the right relationships and connections to help refer those needs to someone else? And ideally, we can address multiple needs within a community and have an overall impact.

1:08:06: Great. Wayne and Lela, you've both spoken a little bit about recruiting the next class of community developers and we are a room full of students here, and so it's fitting that one of our question is, "What skills or qualities do you look for in a person that you're recruiting into this field? And what makes them most successful?"

1:08:28: It's interesting, we have a lot of our younger generation came from public urban planning or public policy graduate schools. They weren't necessarily trained, say, in lending or in real estate development, but they were obviously committed to economic and social justice issues, which to us is a really important starting point. Having the ability to think critically and analytically, we think is really important. We think we can train. So we're not looking for people that necessarily come in with a credit background or a lending background or a real estate development background. But we've been really exceptionally fortunate to really... And, again, having our fellowship program, I think, also has been helpful. But it's more around what their commitment and education and passion is around. We'll do the training.

1:09:35: Yeah, I would agree. I've always said that I can teach anyone CRA. I can't teach people if they don't have the desire to be collaborative, to be innovative, to think strategically. Sometimes you can help people on that way, but really you have to have a interest and a passion. And being a CRA manager provides a unique insight and an opportunity to collaborate with people, whether they're lenders, whether they're responsible for investment, whether they're in the small business space, the housing space. I have colleagues with legal backgrounds, with business backgrounds, with education backgrounds, a wide variety of skills, but what they have is what Wayne indicated, is the desire to take their academic skills and put them to use to make a difference in a community. What I look for in my team was people who had a commitment and the desire to balance that double bottomline: The mission and the business objectives. And people will look for a way to say yes as opposed to reasons to say no. And you're not gonna say yes to everything, but to look at things creatively, not just look at things the way we've always done it, but how can we lead towards change? And that requires some flexibility and some willingness to collaborate and to come up with innovative solutions.

1:11:25: Three things: Accounting; know how to look at a balance sheet and look at a financial statement. Real basic. None of the whole FICO/LICO inventory stuff, just know how to work your way around a balance sheet and a financial statement, profit and loss statement.

1:11:45: And I didn't make him say that 'cause I've been saying that every class. [laughter] I didn't make him say that.

1:11:50: And I would agree with you.

1:11:53: Because in some mix, whether looking at a development opportunity or looking at a small business opportunity or looking at a program, the ability to build a budget is huge. Good writing skills, being able to write well, key. Whether it's because of proposals, whether it's because of requests, foundation, government, financial institution. Being able to write well. And I spent probably most of my time as a president editing everybody else's work. And then, lastly, work ethic. Gotta have a good work ethic. I'm not gonna tell you that... Nowadays, the salary levels are much fairer than they ever have been in this field, but the fact is, many times you're gonna find yourself doing the work of two people, plus. These organizations, they just don't have the ability to hire the way corporations and universities can. You need a good work ethic and being able to not be afraid to put in those hours and to work that much harder is always something identified and appreciated by those of us who manage you.

1:13:09: Alright, we may have time for one more question, or is this the final one? Okay. Question from an audience member is, "Some studies show direct cash gifts can create better outcomes than programs or micro-loans. Do you have thoughts about this?"

1:13:25: I think the answer to that is yes, that's true, but it's not a political reality in the world we live in. That's why I make the joke about all the lawyers' and accountants' kids going to Yale and Harvard, because the system we create makes those intermediaries mandatory in order to get everything done. But for reasons that we could all talk about at length, we are a nation that don't like to give money directly to poor people. We want them to get accredited, we gotta do this, gotta do that. It'd be more efficient, probably less costly, if we just cut people checks for so many of these things, but we just... It's anathema to the American way. I'll just be blunt about that.

[laughter]

1:14:06: The city in Newark, was last year, I guess, had a Valentine's Day sale.

1:14:11: That's right. That's a good one [1:14:13] ____.

1:14:13: And so the idea was that they were going to sell a lot of the vacant lots in the city for $1. Lines out the door. People lining up to get the lots. Now, fast forward 18 months later, not one house has been built and not only that, now they're burdened with paying taxes they can't afford, and they're trying to figure out how they can unpack this and maybe put it in the hands of a non-profit to develop the housing. Yes, any sort of donation is incredibly helpful, especially around disaster recovery, let me put it that way, would be a good example, I think. But I do think that promoting economic mobility for families, it's placemaking economic mobility, to Dean's point about economic mobility, does require, I think, assistance in terms of trying to help people deliver some of those outcomes in my mind.

1:15:21: Another way of saying it, expertise does matter in some regards.

1:15:29: Great. I think this will be our final question. "Lack of financial literacy often leads consumers into unfavorable loans, contributing to foreclosures. How can we improve financial literacy in this country and in the communities that you work in?"

1:15:46: Wow.

1:15:47: Can I be real glib?

[laughter]

1:15:51: Let me get on a soapbox for a minute.

1:15:52: You go first, Roberto.

1:15:53: The proliferation of online lending, whether it's consumer, whether it's small business, any type of online lending, is way too much money looking basically to provide capital in 24 hours to folks in an industry where it's very unregulated. Right now, I think the thing is that while we do need increased financial literacy and starting it at a very young age, I.e., My daughter in middle school. We do need to have that. There also needs to be an environment that says that, "You know what? We will not allow exploitation of people." The amount of regulation that banks face today is huge. The lack of regulation with a lot of these funding sources is ridiculous. And so a thing about it is that, I get concerned sometimes that we blame the person and not the system to make that possible. And so, I think that one of the things that I've worked with organizations on has been trying to get online lenders to tell you what their actual APR is. To tell you what their actual fees are. Just to provide the information 'cause people aren't stupid. If you tell someone it's gonna cost them 300% interest rate, they're not gonna buy in. If you tell them it's gonna be this kind of fee, they will not buy in. So the thing about it is that just the transparency in that product and the transparency around financial literacy, that is a huge part of the issue.

1:17:17: I also think, and Lela knows this better than most 'cause she dealt with a lot of community groups that really came at our bank and other banks about... So when Bank One and Chase merged, Bank One had a big business with pawn shops and check cashers and all this stuff and a lot of the community groups basically were really adamant about that we had to get out of that business. And I think eventually, the bank got completely out of the business. But the unintended consequence of that is that when you have regulated institutions competing with these non-regulated institutions as competition, it drives down pricing. It may make it a little bit fairer. Now, you get every regulated institution out of the business, it's the Wild Wild West.

1:18:00: So they won the battle but lost the war, the community groups. They got all the banks to stop doing this stuff but they have never lever against Chico's Check Cashing. Chico's doesn't care, protest him all you want. Chico's not even there, Chico's probably in Boca Raton playing golf. [laughter] That's some of the things folks aren't strategic in thinking about when they, sometimes when we get out the pitchforks and the placards and things like that, they're not thinking about systems all the time.

1:18:26: But the thing, and this is one of my pet peeves when these type of questions come up 'cause there's a couple things I like to say is, low income people aren't dumb, they're just poor. They make extremely rational decisions based on their life. So you get a lot of non-profits and CFIs are always trying to compete, "Oh, the rates," like Roberto said, "The rates in check cashing are terrible, why do these people do this?" Because it makes sense for their lives. It doesn't necessarily make sense for your life with a savings account, college degree but for what they do, it makes perfect sense. You're competing on price, they're worried about convenience. So a lot of times, we have a paternalistic way of looking at these problems. And the last thing I will say is the best way to know how to manage money is to actually have money.

[laughter]

1:19:11: We somehow expect poor people to have all this experience and this financial literacy about what the best way to save. If you don't have money, saving is more esoteric, and I'm not trying to be facetious, you still need to save and things of that nature, but you won't know how to do a trust for your children unless you had to be in the position to do a trust for your children. There's just never gonna be anything you're gonna do if you don't have excess money to do that type of things. You're not gonna know how to do all the fancy things that folks that have money to leave behind do, unless that's something you actually do. So I always find it odd that when we talk about financial literacy, just like we talk about education, these are poverty issues. But we don't wanna talk about poverty, so we talk about sometimes things that are ancillary to them. It's just like...

1:19:54: Dudley, if I could and I'll try not get onto my soapbox, [laughter] because when Dudley and I start going back on soapboxes it never ends, [laughter] but we have a lot of fun. Financial literacy was one element but there were a lot of causes to the foreclosure crisis. My soapbox is, we, again, can't blame it on one factor or one group of people, and one of the things that we should also keep in mind is what happened with unemployment and who unemployment hit first, and who it stuck around with for the longest amount of time. Folks who were already living on the edge, making their mortgage payments but they didn't have six months, 12 months saved up, and they lost their job and it took them a long time to recover, were very vulnerable in that time period.

1:20:45: Again, someone I know says the best community development program is a well paying job. If you don't have transferable skills, if you don't have the ability to recover from, or sustain a temporary interruption in employment or a downsizing, that means you take a less low paying job, it's very hard to maintain your mortgage and your housing payment. So there's a lot of connectivity to broader economic variables that are occurring, which makes the opening question we started with about what's gonna be the impact of the tax proposals on community development and on families' a really interesting question 'cause when you start to think about some of the downstream impacts of what this will result in, if all of these corporate savings aren't reinvested in better paying jobs, I think we're gonna see many more unintended consequences than are being discussed today.

1:21:56: I would just add, not much more I can add to that other than if you really look at the data from the foreclosure crisis, that well counseled home buyers were a slight default rate as opposed to people who were not counseled, and that's absolutely a fact. There's this myth that CRA caused the foreclosure crisis, couldn't be further from the truth. And even in our mortgage program, we've modified now 600 mortgages for families, $60 million in principal reduction, all of them are counseled. We've had three re-defaults. Where the re-default rate on mortgages are usually 20%, 30%, we've had less than 1% and I attribute that to the great work our counselors do and there's counseling and there's counseling. The ones that are three-hour counseling programs, you see that all the time, that's not counseling. It has to be really in depth commitment around financial counseling to make it work. I think the data absolutely bears that out.

1:23:04: So let me just say, what a great and interesting conversation. Please join me in thanking our entire panel.

[applause]

1:23:16: Let me add two other things to the thanks. One is Ray Waters is here in the audience, I didn't see before. Ray runs the Detroit Development Fund, which is a wonderful CDFI in the city of Detroit. So those of you who are trying to combine your interest in community development finance with making a difference in the city of Detroit, come bother Ray at the reception for a job. The last thing is, please join us in the great hall for a reception in honor of this panel, and thank you once again.

[applause]