NCRC’s Community Benefits Agreement Is Helping LHOME Bring Fair Lending to Louisville

Becoming a Community Development Financial Institution (CDFI) has allowed the Louisville Housing Opportunities and Micro-Enterprise Community Development Loan Fund, Inc. (LHOME), a NCRC member organization, to provide affordable housing and facilitate small business startups in low- to moderate-income (LMI) areas of the city. 

Within the last two years, LHOME achieved CDFI Certification from the U.S. Treasury and has deployed 68 loans at a volume of $731,307 to low-income small business owners and homeowners. This includes a $27,000 loan to Choices Inc., a nonprofit that owns and operates eight houses for formerly homeless survivors of domestic violence, women with disabilities and their families. Choices Inc. faced a number of financial problems and no longer had an executive director. Without a loan from LHOME, they might have had to sell the houses and shut down, leaving the members of their service area with nowhere to go. 

LHOME’s President and CEO Amy Shir said, “they had gone to foundations, they had gone to banks. No one was going to make this loan to them, so I’m really proud of this story.”

LHOME has also been integral in making banking more equitable and available to LMI borrowers and people of color. In contrast to Louisville’s East End, which has one banker available for every 200 people, the West End has only one for every 1,600 people. This disparity is reflective of decades of redlining, underinvestment, discrimination and marginalization, Shir said, adding that with no other alternatives, the majority-minority West End community of LMI residents have no choice but to turn to manipulative payday lenders and other non-bank entities. However, with the CDFI certification of LHOME and the establishment of a $1.57 billion community benefits agreement (CBA) with First Financial Bank, this trend has the potential to change. 

NCRC helped LHOME and other community organizations negotiate the CBA with First Financial Bank. CBAs are between a banking institution and a community coalition, and they designate a commitment of funds that will positively contribute to a community’s social and economic growth. 

Shir said that NCRC’s role in arranging this CBA has been integral to expanding their ability to make impact-maximizing loans throughout Louisville. Through the agreement, LHOME was equipped with $250,000 of “flexible” loan capital that can be used to meet the unique and dynamic needs of the community. First Financial made its first Equity Equivalent (EQ2) Investment to LHOME, providing funding for ten years that is renewable after another five years, creating long-term, sustainable change in Louisville. This investment allows CDFIs to strengthen their capital structures, leverage additional debt capital, increase lending and investing in economically disadvantaged communities and serve as a mechanism for receiving investment test credit under the Community Reinvestment Act (CRA). 

The CRA has ensured that organizations like LHOME get the resources they need to make positive change in LMI communities. This law mandates an affirmative obligation that banks contribute to the communities where they have branches. Under the CRA, federal agencies rate banks by how well they serve low- and moderate-income communities through their track records of lending, service and investing. The legislation holds banks publicly accountable if they are not serving these areas.

The CRA is critical to LHOME’s work and strengthening it could increase the organizations impact. Shir would like the act to have “more teeth” in order to encourage loan fund investments from banks for their lending, investment and service credits. A stronger CRA would also bring investments into CDFIs that operate in places like West Louisville where few banks are making loans, she added. 

NCRC’s advocacy to strengthen the CRA through its TreasureCRA campaign has helped to educate both regulators and banks about the mutual benefits of complying with the CRA, supporting CDFIs and the advantages of supporting similar organizations. The CBA between LHOME and First Financial Bank sent a resounding message to other local banks: it’s time to “step up” and invest, Shir said. 

The future of LHOME looks bright. According to Shir, LHOME has recently expanded its loan offerings from four options to seven, just within the past month. Loan products now include: property tax assistance, small business, working capital for minority and women contractors providing affordable housing, home repair/energy efficiency, small developer rehab, down payment assistance, nonprofit and JobUp! loans that help immigrants and refugees get recertified in the professions they once practiced in their countries of origin. LHOME has also ensured that Muslim clients access Sharia-compliant loan products. All of LHOME’s loans are responsive to community member input and are aimed at promoting wealth-building and ownership for residents and workers in LMI neighborhoods. Using these anti-displacement and anti-gentrification strategies, LHOME is empowering underserved neighborhoods by revitalizing them from within — one community member at a time.

Rachel Zeeve was a policy intern at NCRC. 

Photo courtesy of LHOME.

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