Silicon Valley Bank’s collapse could impact Mass. affordable housing

SILICON VALLEY BANK’S sudden collapse is sending shockwaves far beyond the tech sector, leaving Massachusetts affordable housing organizations particularly panicky.

It’s been less than two years since the California-based bank purchased Boston Private Bank and Trust, which for decades financed affordable housing and supported mortgage programs in the state. Now, affordable housing and community development groups are trying to nail down the scope of the damage and chart a path forward without a clear replacement lender.

“The loss of Silicon Valley Bank isn’t just a loss for the tech sector, it’s also a major loss for affordable housing and for low- and moderate-income homebuyers,” said Clark Ziegler, executive director of the Massachusetts Housing Partnership. “Our challenge now is not just dealing with the immediate fallout of Silicon Valley Bank’s collapse, but also encouraging other lenders to step up and support affordable housing in the Commonwealth the way Boston Private had done so well for so long.”

Federal regulators shut down Silicon Valley Bank on Friday, after a run on the Santa Clara bank. The bank controlled about $200 billion in assets and serviced thousands of technology, life science, and venture capital companies. Its crash is the largest bank failure since the 2008 financial crisis.

The collapse is one part of “an institutional failure of potentially great magnitude,” said Kevin Murray, interim executive director of the Massachusetts Association of Community Development Corporations. “It has been a bit of a scramble,” he said of the last few days, “but nothing like what it has meant to the [executive directors] of our member organizations. The impact on them has been much more direct.”

While most observers have zeroed in on potentially devastating impacts to the technology and life science sectors, Silicon Valley Bank was also propping up affordable housing infrastructure. Their 2022 portfolio, according to federal filings, included $1.3 billion in qualified affordable housing investments. The bank has loaned $2.7 billion to support the new construction or rehabilitation of affordable housing nationwide, according to the bank.

“It is just really, really shocking and something no one was prepared for,” said Symone Crawford, executive director of the Massachusetts Affordable Housing Alliance. Since Silicon Valley Bank came to Massachusetts, Crawford said, “they had been a partner.”

In 2021, the bank acquired the parent company of Boston Private Bank & Trust Company, a wealth management and banking services provider with more than 25 years of investment in homebuyer programs anchored in Greater Boston but spread across the state.

The $900 million purchase came with a promise: continued and significant investments in affordable housing and coordination with local organizations like the Massachusetts Affordable Housing Alliance and the Massachusetts Association of Community Development Corporations.

Between California and Massachusetts, Silicon Valley Bank pledged $5 billion in small business loans of $1 million or less; $4.8 billion in community development loans and investments; $1.3 billion in residential mortgages to lower- and middle-income borrowers in targeted census tracts; and $75 million in charitable contributions.

The bank promised to expand Boston Private Bank’s participation in the Massachusetts Housing Partnership’s ONE Mortgage and the city of Boston’s ONE+Boston first-time homebuyer mortgage programs, as well as contributing to the Massachusetts Housing Partnership Fund.

Murray said Silicon Valley Bank was active in lending to projects and providing equity capital to fund them, providing mortgage loans to families, and giving direct donations to the Massachusetts Association of Community Development Corporations and its member organizations for their work in local communities.

“In this, they followed on a decades-long tradition established by Boston Private Bank,” Murray said. “That tradition has been critical to the establishment of the entire community development infrastructure in Massachusetts. The end of that multi-faceted support will have effects that we are only beginning to understand.”

In an effort to prevent further bank runs or dramatic bond sales, the Federal Reserve, the US Treasury Department, and the Federal Deposit Insurance Corporation announced that all deposits at Silicon Valley Bank would be guaranteed.

That soothed some immediate fears about depositors being unable to access funds, but organizations still don’t know what the collapse means for the bank’s mortgage commitments.

Boston Private Bank, before and during Silicon Valley Bank’s ownership, made 1,800 loans totaling $345 million to low- and moderate-income home buyers, according to the Massachusetts Housing Partnership. Over 65 percent of those loans were made in the city of Boston.

While existing ONE mortgage loans will be taken up by another mortgage company without a change to rates, the housing partnership said, those who settled on loan rates but haven’t yet closed on a home purchase may face rate changes if the Federal Deposit Insurance Corp. decides not to honor all of the bank’s commitments.

The fate of housing construction funding is similarly murky.

“On some projects, Silicon Valley Bank has obligations to a project that is already ‘closed,’” Murray said. “Will those obligations be honored? By whom? On others, they are an important piece of the financing ‘stack’ that was bringing the project to the point of implementation. Either way, the impact of the withdrawal of a key player could be considerable.”

At the state level, Silicon Valley Bank is a lender on 10 out of 64 affordable housing projects in construction, representing more than 500 new rental units. In Boston, the bank is either a lender or bought equity in seven ongoing affordable rental and homeownership projects across the city.

Cities and the state Department of Housing and Community Development are waiting for news of a potential buyer for Silicon Valley Bank while checking in on any housing projects still in flux.

“Since learning of Silicon Valley Bank’s closure, DHCD has reached out to and spoken with all affordable housing developers with projects in construction that we have a role in supporting,” said a spokesperson for the Department of Housing and Community Development. “We are actively working to secure these critical projects and are committed to making sure they can proceed.”

Many organizations and businesses in Boston had deposits with Silicon Valley Bank, city housing chief Sheila Dillon said. While the city is relieved the federal government will honor existing deposits, the status of permanent loans or pledges of financing made before the crash remains an outstanding question as officials check in on all the Silicon Valley Bank-associated projects.

“We’ll get through this,” Dillon said. “The projects will move forward, but for the lending activity, we’ll have to have conversations with other partners and request that they step up and fill this significant hole.”

The short-term pipeline does not seem to be in free-fall so far, housing groups say, in large part because of the federal promises to stabilize the system and quick local response to identify possible funding gaps. But it’s a difficult balance of waiting for news on a sale and starting to plan for a future that may not include one of the more reliable financers in the region.