NEW YORK (10/1/10)--News of the U.S. Treasury Department's investment of nearly $70 million through its Community Development Capital Initiative (CDCI) with 48 community development credit unions (CDCUs) was welcomed by National Federation of Community Development Credit Unions Thursday. "The Treasury Department's CDCI is a milestone in the history of the CDCU movement," said federation President/CEO Clifford N. Rosenthal. "The federation has worked for more than two decades to win support for credit unions that serve low-income communities across the country. The establishment of the CDFI Fund in 1994 was a great victory. This is another," Rosenthal said, adding the initiative "will strengthen credit unions and enable them to expand services to low-income communities at a critical time in our nation's recovery. I also want to thank the Credit Union National Association for the support they provided the federation during what was at times a rather challenging process." Although the funding and authority for CDCI is provided by and through the Treasury Department's Troubled Asset Relief Program (TARP), this should not be considered by any means a "bailout" program, Rosenthal stressed. "Credit union applicants were subjected to rigorous review by the National Credit Union Administration (NCUA), the Treasury Department, and the CDFI Fund to ensure that they are both financially viable and are focused on serving low-income communities," he noted. CDCI awards are not grants, but rather secondary capital loans, which for low-income credit unions are classified as net worth, subject to certain conditions, on their balance sheets. Secondary capital is vital for low-income credit unions, because they-- like other credit unions--lack the power enjoyed by banks to build capital by selling stock, said the federation. Eligible credit unions were allowed to apply for up to 3.5% of their total assets, or $35,000 in secondary capital for every million in assets. The basic structure of the investments made to CDCUs through this program includes a rate of 2% for the first eight years, escalating to 9% for an additional five years, should credit unions choose to retain the loans. "We expect that most participating credit unions will repay the loan by the eight-year mark, if not earlier," Rosenthal said. Recipients of the loans include some of the smallest credit unions in the country, with assets of $1 million or less. The largest credit unions participating had several hundred million in assets. All the CDCU recipients were required to have both low-income designation from their credit union regulator and CDFI certification from the Community Development Financial Institutions Fund. "The statutory constraints governing TARP unfortunately limited participation," said Rosenthal. "But we appreciate everything the federal agencies did to make this program available even to some of the smallest, most resource-poor credit unions in the country." Jackson, Miss.-based Hope FCU, a $129 million asset CDCU serving nearly 24,000 members across Mississippi, Arkansas, Louisiana, and Tennessee, was the first CDCU to be approved for CDCI funds. Hope FCU CEO Bill Bynum called the investment a breakthrough for low-income communities. "By investing in credit unions and other community development financial institutions, Treasury is supporting a key segment of the nation's finance sector," he said. "Hope [FCU] has experienced steady increase in demand for credit over recent years as many traditional lenders have restricted their lending." He noted it would help insure "that the nation's hardest hit communities have access to the financing needed to stimulate economic recovery." Genesee Co-op FCU, $9.5 million asset CDCU in Rochester, N.Y., was also among the first round to close on CDCI funds. "CDCI secondary capital is making it possible for our community development credit union to grow," said CEO Melissa Marquez. "Without this investment, Genesee Co-op FCU was trying to shed deposits, making it more difficult to lend since our loans-to-shares were already at 80%. The $300,000 we received in CDCI secondary capital enables us to serve more members and reach out to other underserved neighborhoods in our community. We can increase our deposits and make affordable loans because our net worth is stronger as a result of this infusion of secondary capital." The federation represents more than 230 CDCUs nationwide. It and others in the CDFI movement worked with the Treasury Department on developing the CDCI program, which launched in February. Since then, the federation has provided technical assistance and support to more than 100 credit unions applying for CDFI certification and CDCI funding. It also worked with the NCUA, the CDFI Fund and the Treasury Department to structure investments to generate the most impact for CDCUs and their communities. For more information about the Treasury's announcement, see related story, "Treasury announces new $570M round of CDCI funds" in News Now's Washington section. For an unofficial list of CDCI recipients on the federation's website, use the link.