Forged over a twenty-year period, SMHA and IBERIABANK’s 100-million-dollar partnership combined a focus on fair access to capital with a commercial bank’s bottom line. This partnership, between a 13-billion-dollar bank and a community development corporation created over a quarter billion dollars in value. IBERIABANK went on to adopt the model it tested with SMHA over the eight states in which it operates. SMHA, equally, learned to develop and test new models with unusual partners, looking to balance fairness and access with profit and business. Our story begins nearly 40 years ago, when the Community Reinvestment Act was passed, with the objective of encouraging commercial banks – using incentives or “credits” – to better meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods, while also ending discriminatory practices. For SMHA, the challenge of bringing affordable and responsive lending to underserved areas was not a theoretical or regulatory problem but was rather rooted in SMHA’s deep experience and connection with the “low- and moderate-income” neighborhoods in South Louisiana. Communities like Four Corners, a black community of sugarcane workers, pushed out of the economy through mechanization and imported sugar. Communities like the West-End, a historically important black neighborhood in New Iberia that had faltered after decades of limited investment, discriminatory housing practices, and little economic opportunity. School teachers, nurses, and service industry workers – generally women – were also often unable to access affordable financing, leaving them unable to realize the dream of homeownership. SMHA saw the CRA Act as an opportunity to bring much needed investment and ownership into communities and neighborhoods that had been forgotten or, worse, intentionally excluded. SMHA and IBERIABANK’s partnership started in the mid-1990s, when IBERIABANKinvested $10,000 to start a revolving loan pool with the Self-Help communities, which included Four Corners. Once the Four Corners Self Help Association demonstrated that people borrowing from the fund would in fact pay back their loans, IBERIABANK increased its investment to $100,000. IBERIABANK understood the value in investing in the “unbankable” – those families deemed too risky by the traditional lending system. For IBERIABANK, who was already a leader in reaching under-served communities, the CRA act created an additional incentive for investment as it facilitated mergers/acquisitions and reduced the cost of the Bank’s capital. SMHA, seeing the need for community development focused lending, had created Southern Mutual Financial Services (SMFS), a certified Community Development Financial Institution. IBERIABANK was one of SMFS’ first investors, providing the newly formed CDFI will a $200,000 grant. SMHA was one of seven rural organizations chosen by national intermediary partner Rural LISC to pilot the Rural Home Loan Partnership as a new way of bringing for-profit lenders, government, and the not-for-profit sector together to make homeownership possible for low-income families, while benefitting commercial banks with CRA credit. SMHA and its lending arm, SMFS, partnered with IBERIABANK and other banks across Louisiana following IBERIABANK’s leadership. Through the Louisiana Rural Home Loan Partnership model, bank partners like IBERIABANK made first mortgage capital available to low-income families (with the USDA Rural Housing Service 502 leveraged loan program providing the larger subordinated mortgage), and the Federal Home Loan Bank of Dallas provided down-payment and closing cost assistance to the homeowner family. SMFS and SMHA providing counseling services helped prepare families for the responsibilities of homeownership, reducing the risk of delinquency and default and adding value to the loans made by banks and Rural Housing Service. As USDA Rural Housing Service wound down its leveraged loan program, SMFS transitioned to providing subordinate capital itself and ultimately to providing first mortgage capital to families that traditional lenders could not reach. The MacArthur Foundation and the Ford Foundation made socially responsible low-interest loans to SMHA that enabled SMHA/SMFS to close loans that were eventually purchased by our bank partners. What the model demonstrated over time, especially as SMFS transitioned to the position of primary lender, was that lending to low- and moderate-income households could be profitable, and that blended financing combined with training and reasonable lending terms minimized risk. For ten years, IBERIABANK provided a 100-million-dollar commitment to buy SMFS’ mortgage loans, using SMFS’ loan policies, at par with no recourse. Through this relationship, SMFS was able to revolve its capital to make mortgage financing available to hundreds of low-to- moderate wealth families. At the same time, IBERIABANK generated revenue on the loan portfolio, continued to earn community reinvestment credit, and, over time, began to adopt the SMFS model as its own and scale it over its eight-state service area. As a result, IBERIABANK has reached hundreds of thousands of borrowers once thought too risky to be reached. For over a decade SMFS filled a critical gap in the affordable capital market, offering a product that met the needs of low- to moderate-income borrowers. SMFS’ success – and SMHA’s willingness to partner with, listen to, and engage with IBERIABANK – helped SMHA and SMFS transform how low- and moderate-income families were perceived in South Louisiana while supporting IBERIABANK’s scale-up of the model that SMHA, SMFS and IBERIABANK established together. IBERIABANK’s scale-up significantly reduced the affordable mortgage capital gap and freed SMFS to seek other arenas where the new financial products and services are needed to meet the needs of an underserved market.
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