The Top 10 Affordable Housing Lenders of 2010 (by volume, in millions)

Company
1. Citi Community Capital
2. Bank of America
3. NY City Housing Dev. Corp.
4. Wells Fargo
5. JPMorgan Chase
6. NY Homes & Comm. Renewal
7. U.S. Bank
8. RBC Capital Markets
9. Capital One Bank
10. Prudential Mortgage Capital
2009
$551 
$1,580 
$1,480.3
$1,636 
$682.3 
$384.4 
$400 
$288.8 
$285
$367.9
2010
$2,940.8 
$1,700 
$1,569.9 
$1,238.4 
$1,066.7 
$712.6 
$700 
$680.1 
$359.9
$340.7

For many affordable housing lenders, 2010 was a comeback year.

Federal stimulus money helped to drive new construction early in the year while equity pricing in the private sector improved a little more each passing month.

A backlog from 2009 spilled out into 2010, as deals using the Tax Credit Assistance (TCAP) and Tax Credit Exchange programs started breaking free from their bureaucratic chains. Construction debt volumes soared as a result, and last year’s record low interest rates on permanent debt also drove a sizable refinancing market.

A sense of optimism now pervades the affordable housing debt industry after bouncing back from a dismal 2009. But that optimism is tempered, as financiers ponder what effect the expiration of the TCAP and exchange programs will have on the affordable housing market.

“That’s a key question for the industry going into 2011,” says Priscilla Almodovar, the national head of community development real estate lending for New York-based JPMorgan Chase. “The stimulus programs were a large driver of the production we saw in 2010, particularly in secondary and tertiary markets. But it’s still not clear whether the recent increase in equity pricing will be sufficient to make up the difference that was filled by the stimulus programs.”

Still, the positive momentum that started last year has led to a much more competitive market for construction and permanent debt. All-in rates on construction loans from CRA-motivated banks continue to drop, and Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA) will duke it out on preservation deals this year.

“If you go back a year-and-a-half, we didn’t see a lot of competition for deals—clients were just happy to have access to capital,” says Kyle Hansen, an executive vice president who leads the affordable housing debt division of Minneapolis-based U.S. Bank. “But today, especially on the coasts, a lot of competition has returned to the market. Pricing and structure have certainly responded accordingly.”

The Rankings
Most of the lenders on the Top 10 list saw a marked improvement last year. But the award for comeback player of the year has to go to Citi Community Capital (CCC). CCC regained the mantle of top affordable housing lender, improving from $551 million in 2009 to nearly $3 billion in a dramatic reversal of fortune.

The company took a cautious approach in 2009 given the dislocation of the credit markets. But 2010 was a much different story. While the bulk of its volume, about $1.8 billion, was in construction financing, nearly $650 million came in bond credit enhancements, driven by the New Issue Bond Program (NIBP).

“We were probably one of the few lenders and investors to really understand and help those few issuers who had the foresight to secure an NIBP allocation for multifamily,” says Steven Fayne, a managing director a New York-based CCC. “We closed more than 50 percent of the NIBP bonds issued in California by both number and volume.”

CCC is cautiously forecasting a similar volume for this coming year. “The only caveat, other than the economy in general, is how aggressive the competition will be,” Fayne says.

The good news for borrowers is that the competition is growing aggressive, especially on the construction debt front. For instance, JPMorgan Chase rolled out its first construction-to-perm program in mid-2010, driven by competitive pressures.

Chase was much more active on the West Coast last year, an outgrowth of its acquisition of Washington Mutual in 2008. In 2009, Chase only closed eight affordable housing deals on the West Coast. Last year, the company closed more than 30. About 15 percent of the Chase’s volume in 2010 was through its construction-to-perm program. While the program currently targets tax-credit deals, Chase is looking to roll out a similar product this year for developments using taxable bond financing.

U.S. Bank also had a bounce-back year in 2010, growing its debt volume by 75 percent over 2009. Of its $700 million in volume last year, roughly $525 million was through the company’s construction-to-perm product, with the remaining 25 percent bond deals.

U.S. Bank opened a new community development office in Orange County, as the bank focuses more on the Southern California market, which it entered when it acquired three small local banks in FDIC-brokered transactions. And U.S. Bank will focus on breaking into more new markets in 2011. The bank acquired First Community Bank at the end of January 2011, which will allow it to expand into New Mexico—its 25th contiguous state.

Capital One is also on the rise. The bank’s increase in volume last year was mainly attributable to its expansion into new markets like Maryland, Washington, D.C., and Virginia, which came through its acquisition of Chevy Chase Bank. “That’s really where we put a lot of emphasis this year and we saw a lot of growth in those markets,” says Laura Bailey, managing vice president for the community development finance arm of McLean, Va.-based Capital One.

Looking Out
Debt volumes should continue to grow this year, though everything depends upon the health of the equity market. If tax credit pricing continues to improve, it could be enough to offset the expiration of the exchange programs. But questions remain about the availability of soft gap financing.

“Tax credit pricing has certainly increased over the last year. When you add the fact that a lot of state and local governments are having budget problems, many deals are still going to have funding gaps,” Hansen says. “The impact of the fallout of the exchange program is really anyone’s guess right now.”

Editors Note:For an expanded version of this article, which includes the complete ranking of the Top 25 Affordable Housing Lenders of 2010, see the March issue of Affordable Housing Finance magazine. The Top 10 rankings reflect only those companies that provide Affordable Housing Finance with figures. If you’d like to be considered for next year’s rankings, contact senior editor Jerry Ascierto at jascierto@hanleywood.com.