The Community Reinvestment Act (CRA) was enacted in 1977 to encourage financial institutions to help meet the credit needs of all segments of their communities, including low- and moderate-income neighborhoods.
The CRA provides a framework for depository institutions and community organizations to work together to promote the availability of credit and other banking services to under-served communities.
At Flagstar Bank, our approach to CRA and Community Development is based on forming strategic partnerships to meet the credit needs of individuals, businesses, municipalities and community-based organizations. We make available a diverse array of loan, investment and service products for our many constituents. In addition, we provide technical assistance, training and grants to individuals and not-for-profit organizations active in meeting the needs of the community.
Flagstar Bank’s Community Development Officer (CDO) serves as the community’s link to the expertise and financial products that the Bank offers. The CDO is also committed to becoming a part of the community on behalf of the Bank through involvement in community activities and by serving on the boards of community-based organizations. Through the CDO’s active participation at the local level, Flagstar Bank has developed a first-hand understanding of the banking needs facing our neighbors and communities.
To Best Practices for Multifamily Real Estate Lending*
Flagstar Bank is a large commercial bank with locations in multiple states. To fulfill the credit needs of our valued real estate clients, support the communities where our employees live and work and to safeguard shareholder value, Flagstar Bank is committed to prudent and responsible multifamily lending practices. As a good corporate citizen we recognize the value of preserving affordable housing stock, of fostering improved compliance by landlords in the rent regulated housing market and of supporting the legal rights of both tenants and owners.
Flagstar Bank's policies discourage the extension of credit to overleveraged or highly speculative properties where economic viability is highly dependent on fostering tenant displacement.
Our key lending policies include property evaluations based upon:
- A minimum Debt Service Coverage Ratio of 1.2X that utilizes only current in-place rents (including preferential rents) and legally permitted rent from existing vacancies at the time of closing. There may be no assumption that the owner will increase rents on the turnover of currently occupied rent regulated units.
- Use of realistic operating expense levels - supported by appraisals and cost averages published in the localities where we lend – including reserves for normal maintenance and capital expenditures.
- Use of Member of the Appraisal Institute (MAI) peer-reviewed appraisers.
- Inspection and review of the building’s condition prior to closing, including but not limited to high violation counts, building permits, eviction rates, and high vacancy rates and loss of rent-regulated units.
And our policies include prohibitions on:
- Additional debt placed upon a property without the Bank’s consent.
- Financing of, or funds being set aside for tenant buyouts that may lead to displacement.
Through extensive due diligence, we strive to avoid extending credit to landlords we deem to have inadequate building and tenant management practices. If prospective borrowers fail to meet our exacting requirements, their requests are declined. Our vetting process makes use of multiple internal and external sources and includes the following:
- Information available from tenants and tenant organizers.
- Landlord Alert Lists which are maintained, monitored and frequently updated by the Bank's own Community Development Group based upon information from various public and non-public sources.
- Adequate resolution of questions and concerns that are raised by searches for property management and building violations.
- In cases where Signature purchases or participates in loans made by another bank or nonbank lender, we will perform the same degree of analysis and best practices as if we were the originator.
Even when all best practices are followed, problems will sometimes arise in the buildings we finance. When they do, Signature will facilitate meetings with interested parties – including the borrower, tenant organizers, tenant leaders and community organizations – to address the issues in the building.
To further support Signature's best practices in regard to multifamily real estate financing, we have created a “Community Liaison” position reporting directly to the Bank's Chief Credit Officer of Commercial Real Estate. This person will serve as the primary contact for community and tenant organizations, will be available to visit buildings, investigate complaints, host information engagement sessions to identify problems with landlords and buildings and gather feedback on the effectiveness of our multifamily lending practices.
Senior leadership will meet with community organizations annually to evaluate the effectiveness of this pledge.
For more information, please contact:
Director of Community Development - VP
*Signature supports the Association for Neighborhood & Housing Development’s (ANHD) best practices, upon which this pledge was modeled.