The banks’ role in creating affordable housing
It’s getting increasingly harder to find an affordable place to live. Sky- high rents, fluctuating mortgage rates, expensive home prices and a shortage of housing are all contributing factors. Every year there are incentives for banks to create affordable housing. How much are they doing and is it making a difference?
Credit: Joint Center for Housing Studies of Harvard University
The numbers
The Federal Home Loan Banks (FHLB), one of the largest sources of private funding for lending institutions, say in 2023 their Affordable Housing Program awarded funding to create more than 20,500 housing units. (77-percent were multifamily, including 198 projects which have 20-percent dedicated to homeless families and individuals)
Like the FHLB, Freddie Mac (Federal Home Loan Mortgage Corporation) and Fannie Mae (Federal National Mortgage Association), government-sponsored enterprises, provide liquidity, stability and affordability to the U.S. housing market.
In 2024 Freddie Mac awarded funding to support over 507,000 planned affordable rental units across the U.S., including 133,000 rent-restricted units. Fannie Mae supported 407,000 units. Since 2018 Fannie Mae has contributed $4B net equity to Low-Income House Tax Credits (LIHTC).
The top lenders nationally for multifamily affordable housing in 2024, according to Fannie Mae were:
- Wells Fargo Bank, N.A.
- Walker & Dunlap, LLC
- CBRE Multifamily Capital, LLC
- Berkadia Commercial Mortgage, LLC
- JLL Real Estate Capital, LLC
In four 2024 LIHTC projects, Cincinnati-based First Financial says it helped create 200 affordable housing units by lending $30M in construction loans and $21.75M in equity investments. The four developments are:
- CJ McLin Apartments (Dayton, OH), 46 units.
- Dayton Kinship Family Housing (Dayton,OH) 26 units.
- Christamore Court (Indianapolis, IN), 40 units.
- Madison View Apartments (Covington, KY), 88 units.
For Fifth Third Bank, a company spokesperson says, “Footprint-wide $660 million in community development debt and equity for 4,617 units of housing. Affordable housing in Greater Cincinnati amounts to 4 loans, 6 equity investments for a total of $98.97 million and 443 units.”
Federal Home Loan Banks
The Federal Home Loan Banks (FHLB), a private, cooperative system of more than 6,500 financial institutions, have $1 trillion in assets. The banks serve as a reliable source of liquidity, offering members lower cost advances and potentially helping them make more loans.
They (11 banks in the U.S., including one in Cincinnati) are required to set aside 10-percent of their net income for low-and-moderate-income households.
The banks say they were able to increase the dollars granted by 112-percent from the previous year to the Affordable Housing Program because of significant growth to the business. This amounted to $752M available for use in 2024.
The Cincinnati FHLB
Last year the Federal Home Loan Bank of Cincinnati, serving Ohio, Kentucky, Tennessee and beyond, announced 56 Affordable Housing Program grants totaling about $50M.
The FHLB’s Welcome Home program provides up to $20,000 in down payment assistance grants to eligible homebuyers. However, because of its popularity, the program is already closed for the year.
This spring FHLB Cincinnati launched the Hundred Homes Initiative, as a pilot program, offering $50,000 grants to 100 households who live in mobile homes built before 1976.
Damon Allen, FHLB Cincinnati senior vice president, chief marketing community investment officer helped create the program. He says, “If you live in one of these, you’re considered homeless because the housing stock is so poor.”
The $50,000 grant can be used for a down payment, closing costs, principal reduction assistance, purchase of land, disposal and recycling of vacated mobile home, legal work and fees. Allen says the old mobile home will be decommissioned so it can’t be used by anybody else.
In 2024 the Affordable Home Program gave $1M to build the Cold Spring Senior Lofts, in Cold Spring, KY (80 units) through the Northern Kentucky Community Action Commission and RiverHills Bank and Heritage Bank.
Nine-hundred thousand dollars also went to Gloria’s Place in Cincinnati through Over-the-Rhine Community Housing and Stock Yards Bank & Trust Company. It will have 44 units.
Regional Banks
Banks emphasize education can help people reach their dream of owning a home. Brick by Brick’s Hernz Laguerre Jr. reports in this podcast there’s a lot to learn.
Fifth Third Bank
Cincinnati-based Fifth Third Bank has taken a leading role in the redevelopment of the Dayton Arcade and Cincinnati’s Walnut Hills, as the equity investor in Trevarren Flats apartments, anchored by Just Q’in and Caffee Vivace.
According to President of Fifth Third’s Community Development Corporation Susan Thomas, “Sort of the first market rate rental housing that had been done in Walnut Hills in some time. And so, we started there and have gradually worked down the block over time.”
The bank works in nine neighborhoods that are part of its neighborhood investment strategy and is continuing to look at adding new neighborhoods.
First Financial Bank
Cincinnati-based First Financial also places the creation of affordable housing as a top priority. “It’s in the DNA of our organization. It starts at the top,” says Roddell McCullough chief corporate responsibility officer for First Financial.
Here are some examples:
- Providing financing through Low-income Housing Tax Credits (LIHTC) for Logan Commons, an Over-the-Rhine apartment building for income-restricted seniors. There are 42 affordable units.
- LIHTC for LPH Thrives, 47 affordable apartments in 11 different buildings in Lower Price Hill.
- College Hill-working with the Cincinnati Development Fund (a CDFI) and the College Hill Community Urban Redevelopment Corporation (CHCURC) to renovate properties.
- In Dayton, partnering with CityWide on commercial redevelopment projects.
- Placing 30 percent of its branches in low to moderate income communities.
Keybank
KeyBank, based in Cleveland, contributed $20M this year to the $100M Cleveland Housing Investment Fund. The fund is designed to create nearly 3,000 housing units, including 100 for sale homes. A KeyBank spokesperson says it’s a pilot project and could be expanded to other cities.
Banks are held to certain standards, so they are good partners with the community.
Federal requirements and incentives
CRA
The Community Reinvestment Act is designed to combat discriminatory lending and requires banks and savings and loans, but not all lending institutions, to meet the credit needs of their community, specifically focusing on low to moderate income neighborhoods.
Banks are evaluated every couple of years on how well they are doing, although there are no specific loan amounts mandated. Financing affordable housing through federal and local tax credits helps banks meet these objectives.
LIHTC
Housing agencies and federal and state-level regulations create incentives. Low Income Housing Tax Credits allow banks to reduce their tax liability when investing in affordable rental housing for low-income households.
States offer grants and loans, including Welcome Home Ohio. Brick by Brick reported on this incentive in the land bank episode. Montgomery County received $7M so land banks can buy, rehab or build affordable housing.
Bank lending to prospective homebuyers
Banks are prohibited from discriminating. Housing Opportunities Made Equal (HOME) analyzed home mortgage lending trends in Hamilton County between 2018 and 2023 and released this report. Executive Director Elisabeth Risch looked at the top 15 mortgage lenders.
She says, “Some of our main findings are that black borrowers are underrepresented in mortgage lending. And so, across Hamilton County the black population represents about 25-percent of the population. Our report found that over the last six years, only about 15-percent of loan applications, again, for all mortgage loans, came from black households. That’s a pretty stark disparity.”
HOME wants to increase black homeownership. It’s 34-percent in Hamilton County. That compares to 74-percent of whites. Zillow says the average U.S. home ownership rate among blacks is 42-percent.
Risch has been talking to banks on how they could do better, like wider use of down payment assistance, interest rate buy downs and opening more banks in communities of color. Some banks are already doing this, like Fifth Third and First Financial.
CDFIs
Fifth Third’s Susan Thomas praises the efficiency of the Cincinnati Affordable Housing Leverage Fund where the city, the county and the funders are on the same schedule. She co-chairs the National Housing Crisis Task Force and is focused in part on helping communities be better served by their housing trust funds. There are 800 nationally and Thomas says they are all different.
Cincinnati’s Affordable Housing Leverage Fund, a public-private partnership, is run by the Cincinnati Development Fund, a Community Development Financial Institution. (CDFI) Since the fall of 2022 it’s invested in 54 housing projects, adding about 1,800 housing units in Cincinnati.
Dayton’s CDFI is the Dayton Region New Market Fund, run by CityWide. It has raised more than $2M in private money to work with developers to preserve 200 units of housing. It is also trying to create a housing trust fund. The goal is to raise $20M to create 1,000 units of housing in 5 years.
Limitations
Brick by Brick found plenty of programs and projects that banks support but the limitations come down to money. Take for example the Welcome Home program supported by the Federal Home Loan Bank. It provides $20,000 of down payment assistance to homeowners but because the program is so popular, it’s already out of money for 2025.
Roddell McCullough with First Financial called out another potential limitation-the government’s 15-percent limit on public welfare investments. Banks say without this they could do more affordable housing development. The government’s reasoning for limiting the purchase of Low-Income-Housing-Tax-Credits and equity investments is to ensure the investments are safe and to prevent banks from becoming overly concentrated in a single area of investment. This doesn’t apply on the lending side.
Looking ahead
Senator Tim Scott (R-South Carolina), a ranking member of the banking committee, has proposed the ROAD to Housing Act. It aims to ensure households who utilize federal housing programs have greater access to financial literacy and improved economic opportunity. The act, if passed, also proposes to review how overregulation contributed to excessive costs and delays in the supply of affordable housing.
Fannie Mae and Freddie Mac are privately owned but went into government receivership after the 2008 lending crisis because they were undercapitalized. There is talk the government may want to privatize them again. Don Layton, former CEO of Freddie Mac, says it’s highly unlikely a conservatorship exit will happen in the next year or two. When asked by Harvard’s Joint Center for Housing Studies about what could happen if it went private again, Layton said not much. He said 90-percent of it is whatever the market is.
The U.S. Treasury Department sent a letter to the FHLB presidents in 2024, asking them to increase the amount they put to affordable housing from 10-percent to 20-percent. The bank presidents said no because it would threaten their business model. The Consumer Federation of America is now calling on Congress to require the FHLB to contribute the 20-percent. This spring Senator Catherine Cortez Masto (D-Nevada) introduced a bill requiring FHLB to contribute 30-percent to its Affordable Home Program.
Can banks step up and do more? For 42 years M & T Bank has done more than most, earning an outstanding rating every year by Community Reinvestment Act standards. The Buffalo, NY headquartered bank, with branches nationwide, combined several bank departments “into a more nimble, responsive affordable housing solutions team….helping owners and developers react to changing market conditions.” This includes Section 8, LIHTC, RAD Properties, Workforce Housing and Naturally Occurring Affordable Housing Properties.
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Ann Thompson – Host, Producer
Over the last thirty years in Cincinnati, Ann Thompson has brought a wealth of knowledge and expertise to her reporting. She has reported and anchored for WVXU, WKRC, WCKY, WHIO-TV and Metro Networks and freelanced for NPR, CBS and ABC Radio. Her work has been recognized by the Associated Press and she has won awards from the Association of Women in Communications and the Alliance for Women in Media. She is a former News Director and Operations Manager. Ann has reported from India, Japan, South Korea, Germany and Belgium as part of fellowships. Ann thinks of the Brick by Brick project as “journalism for good.” She serves as host and producer. Ann lives in Anderson Township with her husband Scott. They have two boys. Jake graduated from the Air Force Academy in 2022 and Kurt attends West Point.
