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In February 1992—fifteen years ago this month—the Washington
Community Reinvestment Association (WCRA) opened its doors with
37 financial institution members, a $75 million loan pool, and a
mission to finance affordable multifamily rental housing in our
state. The story of WCRA’s inspiration, genesis, and
accomplishments is a story of a great idea that garnered enough
support along the way—from a community development think tank
and the Federal Reserve Bank in San Francisco to
forward-thinking bankers and government officials —to build a
constituency of highly supportive partners who all “got it” and
worked hard to see it through to fruition.
      
Since that time, WCRA has gone from strength to strength. It has
grown in membership and taken a strong advocacy position to
increase support at a statewide level for affordable housing and
it’s financing. It now has three revolving loan pools totaling
approximately $105 million. And it has expanded its mandate to
include real estate-based development in areas and enterprises
that serve low-income and special needs populations. All told,
after a decade and a half, WCRA has financed the construction
and preservation of close to 8,000 homes for people throughout
Washington State.
WCRA is a banking consortium: an association of for-profit banks
and thrifts that band together to participate in community
development lending. The rates WCRA sets for low- and
moderate-income housing and other projects are below market,
which lends a hand to worthy efforts. Member financial
institutions, in turn, are able to diversify risk, gain credit
toward meeting their Community Reinvestment Act (CRA)
requirements under federal law—and gain that great intangible of
doing the right thing by their communities.
Judy Reed’s leadership
WCRA was one of the first lending consortia to be established
and it is now widely acknowledged as one of the most innovative
and effective organizations of its kind in the U.S. “It’s been a
great run,” says Judy Reed, who just stepped down this month
from her role as WCRA president.
"It's been a great run."
Judy Reed, President WCRA 1991-2007
Judy led WCRA from the very beginning. As everyone I’ve
interviewed for this issue of My View has emphasized, she
was the perfect choice for the role. Judy provided thoughtful
leadership, serious banking credentials, innovative ideas for
new lines of business, and the ability to bring different groups
to the table. She helped WCRA build a strong financial footing
and, along the way, established it as a voice to be reckoned
with in affordable housing advocacy in the state legislature.
She also helped WCRA develop a strong voice at the national
policy level, and took a leadership role in advising other
consortia across the country on best practices.
The perception of risk—and the
provisions of the CRA
All of WCRA’s accomplishments are based on a single key insight,
which became the basis for a paradigm shift. Thanks to WCRA,
for-profit financial institutions in our state have a completely
different perception of the risk posed by affordable multifamily
lending.
The funding climate was very different two decades ago. Many
affordable housing development projects foundered because of a
lack of permanent financing. Much of this was due to a simple
misconception on the part of private lenders, who assumed that
lending to nonprofit developers must be extremely risky. In
fact, it was unknown territory, and many banks simply didn’t
have the in-house expertise to evaluate projects. This was truly
a national problem. There was the recognition that affordable
housing was a growing national crisis. The Low Income Housing
Tax Credit (LIHTC) program was in its infancy, but few banks
were willing to jump into LIHTC-subsidized projects.
At the same time, banks were—and still are—under a considerable
amount of pressure to meet the requirements set by the CRA,
which was passed in 1977. The point of the CRA has always been
to ensure that banks are fairly meeting the credit needs of the
communities in which they operate. That means not just taking
deposits from customers, but making loans and meeting the
spectrum of banking needs of the low- and moderate-income people
and their businesses in the areas where these banks conduct
business. Banks, thrifts, and other depository institutions are
routinely audited by federal agencies to ensure compliance.
The genesis of a great idea
The notion of pulling together banks to pitch in on financing
affordable housing deals while at the same time enabling them to
remain fiscally responsible to their shareholders “was really
John Trauth’s idea,” says Kathy Kenny. In 1985, John was
executive director of the Development Fund and Kathy was deputy
director. The Development Fund is a San Francisco-based think
tank and incubator for innovative programs in the areas of
affordable housing and community development. It’s a small
organization, founded in 1963, that has launched some
high-profile ideas.
John Trauth, Former Development Fund Director, continues to
work in the affordable housing arena as a consultant. He's
currently advising the City of Irvine on one of the largest
community land trusts in the U.S.
John recalls the situation in the mid-eighties: “There was some
resistance on the part of banks to make loans for affordable
housing projects because they didn’t understand them, the risks
were undeterminable, and there were all these other partners in
the deal, like governments—and it was all just too complicated.
“We came to Bob Parry and Kelly Walsh at the Federal Reserve
Bank of San Francisco (FRBSF) with this idea: Why don’t we
create a statewide lending consortium for affordable housing,
where the banks would get together to form a nonprofit mortgage
banking corporation and then hire people to run it who really
knew what these projects were about,” says John. “The banks
would be able to fund these projects, and in the process, they
would form a loan committee and make decisions—and learn about
them and how safe they were.”
“Of all the states where we’ve ever
worked on this model, the state of Washington was the most
receptive—not only the banks but all the public sector people
and nonprofits as well. It’s a rare thing to see people working
together like we experienced in Washington.” Kathy
Kenny, Former Deputy Director, The Development Fund
John and Kathy began by securing grants from several foundations
to lay the groundwork for pulling a task force of banks together
in California. John’s banking consortium model had been inspired
by two previous community development finance models, the
Community Preservation Corporation in New York and Chicago’s
Community Investment Corporation. Both had some similarities to
what he envisioned, but there were some significant differences:
they were regional, not statewide, and they focused on
rehabilitating existing housing stock in lower-income
neighborhoods—not new construction.
“The question was, can we take that basic structural model and
adapt it for a new product and make it statewide,” John says.
“That was the challenge.”
Teaming up with the Federal Reserve
Kelly Walsh, Senior Examiner, Federal Reserve Bank of San
Francisco
“Early on, we teamed up with FRBSF,” Kathy recounts. “The CRA
was getting a lot of attention all of a sudden. The Fed was
beefing up its activities. People were hammering on banks,
saying ‘you should do more.’ With the help of the Fed, we got
the attention of banks at the very highest levels in California.
At that time, the CEO of Security Pacific was recruited to be
the lead advocate for a consortium and the chair of the task
force. He and Bob Parry, president of FRBSF, were able to
convince the top leaders of California banks to send their top
loan officers to staff a task force.”
Kathy notes that the contribution from FRBSF was critical,
“particularly Kelly Walsh of the community affairs group. Bob
Parry and Gordon Smith, who was Kelly’s boss, also deserve a
huge amount of credit for being willing to facilitate and use
their power—the power to convene—to get the banks together, to
get them to listen to this idea. Without them we wouldn’t have
gone anywhere. This was an unusual group who really understood
the importance of this.”
Fifty-six California banks were recruited, beginning in 1988.
During the initial phases, concerns about legal and IRS issues
were addressed by the task force. This was also where the Fed’s
participation came in handy: the Fed team could draw on a large
legal staff. “We were able to assure the bankers that they would
get credit for their participation in the consortium under CRA,”
adds Kelly Walsh.
In 1989, after the feasibility studies were completed and the
operational framework was built, the nation’s first statewide
banking consortium, California Community Reinvestment
Corporation (CCRC) was officially launched.
Washington State quickly catches on
Right out of the gate it looked like CCRC was going to work, and
work well. The teams at the Development Fund and FRBSF knew that
this was a great idea that could be replicated elsewhere. They
decided to focus next on Hawaii—another state, like California,
where housing costs were particularly tough on low-income
residents. About the same time, both Florida and Washington
State were showing interest. Officially, Washington State was
the fourth to found a banking consortium, but the efforts to get
WCRA off the ground were “almost simultaneous,” says Kathy.
In 1990, FRBSF made the official entrée to several of the top
banking leaders in our state. Gerry Cameron, then the Chairman
of US Bank of Washington, agreed to take on the role of task
force chair. “He was the ideal choice,” recalls Kathy. “He was
very community-minded, very open to the idea, and had the
respect of his fellow bankers.” The original group of top
Washington State bankers in support of the consortium idea also
included Tim Turnpaugh, vice chairman of Seafirst Bank (and task
force vice chair), and Security Pacific Bank Executive Vice
President George Michael.
Nineteen Washington State financial institutions signed on to
join the task force; public agencies were also invited to
contribute as well. I was asked to participate in this
evaluative process, as was Jeff Robinson, who represented the
Washington State Housing Trust Fund (HTF), along with others
from the public sector.
At the time, most of us had no inkling of the long and
successful journey we were embarking on. I remember sitting at
the original meetings and saying to myself, “This sounds like a
wonderful idea; can it really work as well as they say it will?”
The original concept was simple: creating a revolving loan pool
that would be used exclusively to fund affordable and special
needs housing. We quickly added four more objectives to our wish
list:
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Creating an effective method of pooling risk
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Reducing and controlling administrative costs
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Sharing the specialized underwriting/lending guidelines for
affordable and special needs housing
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Assisting lenders to meet their CRA goals
Working out the details turned out to be a 16-month process that
involved more than 40 lenders, a dozen public agencies, John and
Kathy from the Development Fund, and Kelly from FRBSF. That’s
truly where the WCRA partnership began, in the monthly meetings
and committee work and reports that were carried out over that
period. At the very start, WCRA was already fine-tuning a
consortium model that would be unique to our state’s needs. WCRA
members would include not only banks, as with CCRC, but also
thrifts. In the coming years, WCRA would continue to set itself
apart in the uniqueness of the lines of business it created to
benefit the communities of our state, and in the collegial
relations that came to flourish among member banks.
Kathy Kenny recalls, “Of all the states where we’ve ever worked
on this model, the state of Washington was the most
receptive—not only the banks but all the public sector people
and nonprofits as well. It’s a rare thing to see people working
together like we experienced in Washington.”
After the initial task force was completed, the banks themselves
took over. It was their organization. Doubtless many members had
no idea how successful their venture would become. The 37 bank
members agreed not only to capitalize the original operation,
but to subsidize its operations for a maximum of three years.
WCRA would need to focus on becoming self-supporting and would
also seek out secondary markets for its loans.
There was one remaining task that was absolutely critical:
selecting a leader to run it.
The right people
“We were really fortunate from the
beginning to have Judy Reed involved. She came to us with a
great deal of experience...She brought a lot of credibility to
the role.” Jim Boora, Past WCRA Chair, Retired CEO,
Anchor Bank
There’s a story Kathy and Kelly tell about taking Judy out to
dinner at the Space Needle to talk her into applying for the
president slot. “We worked her over,” says Kelly. Judy remembers
it this way: “At the time, I was working for Security Pacific
doing community reinvestment and community development lending.
One morning—this was in 1991— I learned that BOA had just bought
my bank.”
Says Jim Boora, outgoing WCRA chair and former CEO of Aberdeen’s
Anchor Bank, “We were really fortunate from the beginning to
have Judy Reed involved. She came to us with a great deal of
experience. Member organizations had considerable confidence in
her. She brought a lot of credibility to the role.”
WCRA’s history is a history of partnerships, and no one has
played a stronger part in this than the bankers themselves. “The
bankers really have been wonderful about being able to put their
competitive issues aside, and working together around the issues
of affordable housing through the WCRA. I’ve really been quite
proud of our industry that they’ve been able to do that. They’ve
given this organization tremendous support over the years,” says
Judy.
Susan Duren, President, WCRA
Former WCRA chair Karen McCormick, who is president and CEO of
First Federal Savings and Loan Association in Port Townsend, is
quick to also credit Judy Dailey’s contributions. At the time of
WCRA’s founding, Judy worked in the Community Development office
of Federal Home Loan Bank in Seattle. “Judy Dailey was very
passionate about banks taking CRA to heart,” says Karen. “Not
looking at it as a regulatory requirement, but as something they
could do, they could feel good about—and that they could make a
profit doing. She worked a lot with Judy Reed in those early
days, to make sure that banks could take it to heart. She was
passionate about it enough to convince me—and to convince our
organization.”
Right after WCRA opened its doors for business, in April 1992,
WCRA hired Susan Duren as vice president and director of
lending. Earlier this month, Susan took the reins from Judy as
WCRA president. For those of us who have worked with Susan over
the years, there’s no question that she is the right choice.
“Susan,” says Judy, “is as committed to this organization as
I’ve ever been. I’m leaving with very good feelings about who’s
taking over WCRA’s legacy and moving ahead with it.”
A statewide organization
In 1992, with a small but expert staff, “we started doing
deals,” Judy says. “By the second year, we were self-supporting
and had closed loans on about $22 million. It was a lot of work,
but it was definitely the right time, the need was there, and we
had the product to fill it.”
In addition to getting projects underway, right at the top of
Judy’s agenda was making sure that WCRA fulfilled its mission of
meeting funding needs throughout Washington State. “There was
quite a bit of skepticism on the part of people in central and
eastern Washington about whether they’d ever see us on that side
of the mountains,” Judy laughs.
Judy took WCRA’s role as a facilitator and promoter of
affordable housing seriously. That meant, for one thing, getting
out to rural and eastern areas of Washington State to help
develop a marketplace. “In the beginning,” she recalls, “there
weren’t as many people doing housing development as was needed
to do the kinds of volume we wanted.”
She worked with Maureen Markham, a Washington State housing
resource team leader, to create a series of workshops. “Maureen
did Housing Development 101 and I did Housing Finance 101. We
worked to improve capacity. There were a number of nonprofits
doing social services that saw housing as a need, but didn’t
have the development expertise. Working with the state, we tried
to build that—and to ensure that there was as level a playing
field as we could get.”
WCRA has seen a significant portion of its loans applied beyond
Puget Sound. By 1995 20% of that year’s business was generated
from Eastern Washington. “We go on a first-come, first-served
basis, but we’ve never had a shortage of money—we’ve always had
enough to meet demand.”
Larry Burke, a senior VP with Key Bank’s Cascade district, is
the newly appointed chair of WCRA. He notes, “WCRA does a
fantastic job in giving us the opportunity to participate in
low-income housing projects throughout the state. WCRA makes
sure that projects throughout Washington get a fair hearing and
get their fair share of funding. The ultimate proof of that is
the expanded membership base that we’ve built up over the past
15 years.” |
