A conversation with NPHS on how it leveraged CRA credit to fund its new homeownership pilot program.

As California’s affordable housing crisis deepens, an innovative solution has emerged that is helping low and moderate-income homeowners build wealth, address the shortage and give banks a new way to meet their Community Reinvestment Act (CRA) Obligation — a federal mandate requiring banks to lend, invest and provide financial services in the communities where they do business. 

In 2024, Neighborhood Partnership Housing Services, Inc. (NPHS), a BIPOC-led Community Development Financial Institution (CDFI) based in the Inland Empire, launched ADUgo, a pilot program offering low-cost loans to assist residents in purchasing Accessory Dwelling Units (ADUs), also commonly referred to as “granny flats” or “mother-in-law suites.” The initiative, designed to serve LMI homeowners, has already led to new housing options and has opened up a new pathway for banks seeking CRA credit through innovative lending.

For nearly 40 years, Rise Economy has used the CRA  — the strongest tool available to address economic inequities — to push banks to reinvest in the communities they serve. Now, programs like ADUgo are showing how community-rooted solutions can build upon the requirements of the CRA. 

Rise Economy spoke with NPHS President and CEO Clemente Mojica to talk about how ADUgo came to life and how it can be used as a model for other financial institutions to meet their CRA obligations while also tackling California’s housing crisis.

This conversation has been edited for length and clarity. 

Rise Economy: Can you start by walking me through the establishment of ADUgo?  What were the challenges, if any, in developing the program?

Clemente Mojica: We launched a manufactured housing social enterprise. That means that we created a company to sell factory-built, single-family homes and accessory dwelling units to low-income families, [particularly to] families of color. 

Our work is rooted in equity — and it will always be, regardless of who’s running the White House. The reason we got into manufactured housing is that it’s a lot cheaper to build [good] quality. It’s 30% less compared to site construction and it’s eco-friendly, making our carbon footprint a lot less. 

More than 99 percent of prospective buyers wanted an ADU rather than a single-family home. As a lender, we got flooded with these requests with folks asking if we could take on the financing. It made sense for us to get into this space because, as a CDFI, we can. We had the product in the marketplace, but did not have the financing, so LMI homeowners can build an ADU. 

One of the challenges we face that prevents us from taking this product across California is that not every marketplace is offering factory-built ADUs and it’s cost-prohibitive, in certain regions, like the Central Valley, and there are no local plants to source them or nonprofit retailers. I think we’re the only ones in California. The distance to ship a factory-built unit to Central California will add about 20 to $25,000 to the cost. So there are a lot of challenges in scaling the key to factory-built units staying affordable and making projects. [We need] a process for rural communities to adapt because of that extra price. 

Rise Economy: How could ADUs help fill the gap in affordable housing in California and do you consider them an innovative way to solve affordable housing?

CM: What we do elevates and highlights failures in the marketplace. The private sector is failing. There’s this consumer base that can access affordable financing, that can get an equity line of credit or refinance and cash out. Affluent homebuyers and homeowners are okay, but the families that we are helping can’t do that. 

Our EQ2 investments through two banks were really helpful in [our] development process. [We have] a product that’s affordable and will attract investments from the private sector. A lot of these families got rates at 2-3%. If they were to cash out and refinance, the interest rate would increase] to a 7-8% rate they can’t afford. So they’re stuck with either mattress money [or it’s just] too much. 

I started knocking on doors and one of the challenges was that people didn’t understand factory-built ADUs. The state has been working on policy for the last three years and all sorts of bills have made it easy to build ADUs in your backyard without too much local government discrimination or trying to slow you down, because it does put a burden on local infrastructure. I admit that it does, but everybody wants more housing units.

My idea was to make this attractive, and I know that banks want CRA credit. That triggers whatever credits these investors are looking for, and I learned [that banks] get an investment credit and then if that CDFI has a loan, they also get a lending credit as well. That’s how they help us create the product’s parameters. We wanted to start with a $3 million pool so we could pilot 20 loans. One of the challenges [is that] we don’t have a secondary market. We borrowed $3 million from five different banks that each gave $500,000 or so for five-to-six years until we pay it back. But we’re lending it out at 30 years.

Rise Economy: How are Community Benefits Agreements (CBAs) and the Federal CRA being utilized in your strategy to leverage capital from banks?

CM: Sometimes folks don’t know that capital is there. Banks are looking for where to fulfill their CBA agreement. If there’s a certain tranche of money that needs to go to multifamily,rural areas or a special purpose credit for Black families, [the] right people are just not aware of those agreements—unless you’re a CDFI and in-tune with CBAs or connected with an organization, like Rice Economy or NCRC, that does this work. 

There’s a deficit in the state, so why CBAs? Why CRA? It’s to direct investments into communities that have historically not been invested in and get whatever credits the banks get for making those types of investments, at all costs. 

I can only absorb so much capital at a certain cost, so I have to find where I can find low-cost or no-cost capital where I can get it. That either comes from performing a grant, which again could be out of a CBA driven by CRA, or I can get a very flexible EQ2 [investment]. All those types of offerings come out of CBA agreements that are CRA-driven.

Everything that we are being asked to do is CRA eligible. All these buckets of commitments for loans structure so that you can make it CRA eligible. Not only are [banks] meeting [their] obligations with the CBA agreement but [they’re] also getting CRA credit. 

Rise Economy: Would you call it a blueprint for how the rest of the state should approach affordable housing?

CM: [NPHS is] addressing the housing shortage with a holistic approach by utilizing] the CRA. It’s just another strategy to bring more affordable units into the marketplace. Most families who purchase an ADU from us are unaware of its potential as an investment.

It’s utilizing [the land] that’s already there. It’s eco-friendly and it still creates generational wealth because it adds value to the existing property.

If you make it a CRA investable vehicle, you could really package it, whether it’s for ADU financing, solar financing, home repair financing, etc. If you back into the parameters that unlock CRA credit for the banks, you could really repurpose it for anything.