Frequently Asked Questions—Positive Social Purpose Lending Program
Q. What is the Positive Social Purpose (PSP) Lending Program?
A. The PSP Lending Program is a investment program designed to earn a risk-adjusted rate of return through loans made to real estate-based projects (which take priority over other debt sources) that impact low- and moderate-income individuals, families and communities. It is a form of "double bottom line" investing that seeks to invest capital not only to produce acceptable financial returns, but also to produce measurable social returns.
Q. How long has the program been in existence?
A. The PSP Lending Program started in 1990. The program has had several names over its history. Today it is called the Positive Social Purpose (PSP) Lending Program.
Q. How large is the PSP Lending Program?
A. The program began in 1990 with a $25 million commitment that has increased to more than $800 million at the end of 2009. Over the years, the program has cumulatively financed over $1.5 billion in affordable housing and community development loans. The total outstanding balance fluctuates over time as loans are paid off.
Q. Is the PSP Lending Program a direct lender?
A. No, the program does not make direct loans or originate loan transactions. It works through a network of intermediaries that present the General Board with loan participation opportunities for a variety of community development projects. By participating in the loan, the intermediary takes a subordinate position to the General Board and provides a small portion of the total funds that are delivered to the final borrower.
Q. What is an intermediary?
A. Within the PSP Lending Program, a intermediary is generally a nonprofit organization that is mission-driven to support underserved individuals, families and communities through the development, rehabilitation and preservation of affordable housing and/or community facilities projects. An intermediary is generally a Community Development Financial Institution (CDFI).
Q. What do intermediaries do?
A. Intermediaries perform initial project due diligence, provide ongoing servicing and monitoring of funded transactions and most importantly, provide credit enhancements through their subordinate participation in the loan.
Q. Does the PSP Lending Program make direct investment in community organizations?
A. No. With the exception of microfinance investments, which finance small businesses internationally, all investments are secured by a lien on the underlying real estate.
Q. In which type of projects does the program invest?
A. The PSP Lending Program invests in four main categories of projects:
- multifamily housing, such as homeless shelters and affordable, senior and special-needs housing;
- community facilities, such as health care, day care and other facilities that support low- and moderate-income communities;
- charter schools; and
- international microfinance
Q. What criteria are used to determine which projects are funded?
A. Projects are first evaluated to ensure that the rate of return is consistent with expectations. Next, the program seeks to ensure the project serves the housing, social or economic needs of historically disadvantaged individuals, families and communities.
Q. What type of financial return does the PSP Lending Program seek?
A. The program seeks a rate of return that is comparable with that of other investments of similar maturity, risk and structure.
Q. Does the PSP Lending Program make below-market-rate investments?
A. The program will not invest in a project for which the rate of return is not commensurate with the risk, nor will it make an investment defined as below-market.
Q. What type of social returns does the PSP Lending Program seek?
A. The program seeks measurable social returns that include the creation of affordable housing for low-income individuals, families, seniors and special needs populations; quality local schools for low- and moderate-income neighborhoods; and safe and convenient community facilities that serve the needs of historically neglected communities.
Q. How does the PSP Lending Program measure its impact on underserved communities?
A. The program's impact is measured in the number of affordable, senior and special needs housing units created; the number of beds offered by the homeless shelters; the number of residents served by the health care, child care and substance abuse centers; the number of charter school seats; and the number of jobs created through commercial and retail opportunities.
Q. In which locations does the PSP Lending Program invest?
A. The program is geographically diverse and has made investments in all 50 U.S. states and the U.S. Virgin Islands. Through our international microfinance program, we have made investments in South Africa, South America, Eastern Europe and Southeast Asia.
Q. Can outside organizations or individuals invest in the PSP Lending Program?
A. At the present time, the PSP Lending Program is only available as an investment option for UMC-affiliated organizations.
Q. Who benefits from the PSP Lending Program investments?
A. General Board participants benefit from the positive financial returns; targeted individuals and families and underserved communities benefit from new or redeveloped assets, social services and job opportunities; and we all benefit from more vibrant and stable neighborhoods that have quality schools and the necessary supporting services that contribute to thriving communities.
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