To cut through the red tape, Texas National Bank created its own community development corporation. It’s a promising model for developing affordable first-time homeownership opportunities without federal help.
By Oscar Perry Abello
When the pandemic hit, Mayra Ibarra moved back into her mother’s house to get some help with rent and childcare. There, she had to share a bedroom with her youngest son. Ibarra’s mother didn’t have internet access, but they quickly installed it so her son could attend kindergarten remotely. She bought him an old classroom chair, the kind with the desk attached to it, to keep in their bedroom.
The setup worked for a few years, “but it felt like this is not my home, this is my mother’s home,” Ibarra says. “I wanted my home, my own space. Same for my kid.”
About a year ago, Ibarra started looking at different neighborhoods around the Rio Grande Valley, where she grew up. While Ibarra has a stable job, having spent the past decade working at a small outpost of a global logistics company, housing affordability remains a challenge in the Rio Grande Valley. Home prices there are lower than other parts of Texas like the Austin or Dallas-Fort Worth metros, but the salaries are even lower by comparison to those other regions.
In June 2024, Ibarra finally moved into her first home, becoming one of the first to come through a new first-time homeownership program run by Texas National Bank, a 105-year-old community bank and one of the oldest Hispanic-owned banks across the country. In about two years, the Rio Grande Valley-based bank has developed seven new homes by creating its own community development subsidiary.
A unique strategy for banks to build housing
Though the program itself is new, the mechanisms and the process behind Texas National Bank’s new first-time homeownership program are tried and true, though rarely seen in racial or ethnic minority communities or immigrant communities.
And crucially, at this turbulent moment, the model required no direct federal subsidies to build and deliver the home to Ibarra. If federal subsidies do become available – something no financial institution can rely upon for the next few years — the bank could incorporate these resources into the model later.
The model allows the bank to develop homes it can sell at below-market prices by doing what community banks have always done: by drawing on relationships with local businesses and local contractors as well as mission-aligned nonprofits or quasi-public agencies, like the Texas State Affordable Housing Corporation (TSAHC).
To develop the homes, rather than financing another developer or partnering with a nonprofit housing developer, Texas National Bank created its own subsidiary nonprofit, the Del Valle Community Development Corporation, in 2020. The bank then put some of its own cash into the subsidiary’s coffers as working capital to get the ball rolling — $400,000 from the bank so far.
With that cash and bank staff volunteering their time to run its operations, Del Valle Community Development Corporation started identifying vacant lots to acquire for low to no cost. Sometimes it acquired lots from other nonprofits or for-profit developers — some with the understanding it’s for a good cause, others just looking to unload lots that they aren’t able to develop right now because they’re short on cash or some other barrier.
The bank staff then reach out to local contractors and subcontractors they know who might have availability. As busy as contractors can get, there are inevitable delivery delays or other hiccups that put a crew on pause for a few hours or even a few days, giving them time to take a quick trip to a Del Valle lot and get some work done.
It requires a lot of complicated project management, but it’s project management that a community bank managing a portfolio of construction loans is already involved in. Out of Texas National Bank’s $610 million loan portfolio, $109 million are construction loans. That’s a lot of contractors and construction crews that are in close contact with the bank every day, making sure those projects stay on track for completion.
“We run a bank, we can’t be building these homes ourselves. How do we do that? Well, we have a lot of clients that are builders, and we said to them, hey, help us. This is what we're doing. This is what we're trying to do. It's for a good cause,” says Rey Garcia, executive vice president at Texas National Bank. “What we found was an overwhelming response from even the builders saying we want to support, we want to help.”
One of those Rio Grande Valley contractors shares an office with Ibarra’s employer and told her about the program in the first place. She got to visit the site that eventually became her home back in March 2024, when it was still just a wood frame.
“They asked me if I would be part of the process of building it, like what color I want,” Ibarra says. “But I had already seen the construction company’s work and I knew them, I trust them, I had seen the quality of their work. It was like everybody was reading my mind. I could have been part of it but I didn’t feel like I had to do that at all.”
In addition to low-cost or donated labor from contractors, the materials to build the homes — surplus pipes, wiring, framing and more — are also donated whenever possible. The bank also filled Ibarra’s home with furniture donated by a local business the bank knew. The appliances were donated personally by a bank board member. The bank also connected Ibarra with down payment assistance and provided the required homeowner counseling to go along with that assistance.
The donations and the complicated project management keep down development costs so that families like Ibarra’s can easily afford the sale price with a mortgage from Texas National Bank. (After spending all that time working with the bank, why look elsewhere?) Once the bank makes the mortgage to Ibarra, the sale proceeds go back into Del Valle Community Development Corporation’s coffers to get recycled into the next project.
The bank sets the sale price for each home at what’s affordable for a family of four earning between 50-80% of area median income in the Rio Grande Valley, which comes out to a price range of roughly $150,000-$175,000, according to Garcia. Median home prices in the Rio Grande Valley are around $280,000, meaning Del Valle’s homeowners are walking into situations where they immediately have at least some additional equity in their home. Those homeowners are restricted from selling those homes for at least five years, according to the sale terms from Del Valle Community Development Corporation.
How mission-driven banks can cut through red tape
All banks have the option to establish a subsidiary community development corporation. According to the Office of the Comptroller of the Currency, one of the federal agencies that regulates banks, “a CDC subsidiary can serve as a mechanism to address community development needs on an ongoing basis.”
“That first hurdle is just what's the right entity or right vehicle to make this possible, even legally speaking,” says Garcia.
Some bank CDC subsidiaries focus on housing, others on small business, and still others on larger economic revitalization projects. Texas National Bank isn’t the only minority-led community bank with a CDC subsidiary attached. Others include Baltimore’s Black-owned Harbor Bank of Maryland, New York’s Black-led Carver Federal Savings Bank, or Black-led City First Bank in D.C.
But bank CDC subsidiaries remain relatively rare in minority communities because banks tend to work in communities that reflect their ownership or leadership, and racial or ethnic minority communities own or control relatively few banks. Of around 4,700 banks across the country, only around 140 are owned or controlled by racial or ethnic minority communities.
As a Hispanic-owned community bank more than a century old, Texas National Bank was already plugged into other affordable housing and homeownership programs active in the Rio Grande Valley, from local down payment assistance programs to state and federal programs. But it still wasn’t enough. A lot of the other programs, especially at the federal level, required layers of red tape that slowed things down.
The bank isn’t going to stop participating in all those programs, but its leadership felt there was still something more they could do, and with less red tape. There were even potential borrowers, like Ibarra, who were already so close to being ready to buy, but there just weren’t homes that fit their needs budget-wise or space-wise. Resources were being left on the table.
“It was almost frustrating,” Garcia says. “Like, how can we just do something on our own, without all the red tape, and just kind of cut through all that and make it much easier to work through.”
Since forming the CDC subsidiary, the biggest bottleneck happens at the beginning of the process — identifying vacant lots that Del Valle Community Development Corporation can acquire at costs that allow for an affordable sale price later.
“This is by far the biggest issue that we have right now — sourcing affordable lots,” says Garcia. “We had a little bit of success here and there, but it has been a struggle. We ran out of affordable lots at one point so we had to stop building.”
Last year, an opportunity came around to acquire 20 vacant lots scattered across the Rio Grande Valley. The bank ended up forming a partnership to acquire them: Del Valle Community Development Corporation had enough cash to acquire 10 lots up front, and TSAHC used its land banking program to acquire another 10 lots to hold in reserve for the CDC subsidiary to acquire once it has the cash to begin construction on those lots.
“We’ve worked with a lot of CDC and nonprofit developers, but this is a unique structure for us where a financial institution that created a CDC has become a local partner for us in the program,” says Katie Claflin, senior director at TSAHC. “Although their structure was a little bit different, they followed all our typical guidelines, including affordability standards and building quality standards. ”
With those lots in the pipeline, Texas National Bank expects to sell at least six more homes through Del Valle Community Development Corporation by the end of 2025. The bank also anticipates making another cash infusion into the subsidiary later this year to help speed things along. It’s also open to others contributing to the subsidiary.
“Even a 0% loan [could help], because really, at the end of the day, once Del Valle CDC builds the home and sells it, it can repay that,” Garcia says. “We have a waiting list right now and so we're working through that list, started initial vetting of those potential homeowners, because we want to get everyone qualified and lined up.”
For Ibarra, the opportunity to work with the bank was a “blessing.”
“I know the process of buying a house is stressful and time-consuming,” Ibarra says. “But the ladies at the bank were a good source to guide me through the process. They were patient. I was patient too. I was surprised because I normally don’t have a lot of patience.”
This story is part of our series CDFI Futures, which explores the community development finance industry through the lenses of equity, public policy and inclusive community development. The series is developed in partnership with Next City.