may 2009 the board hosted a community development finance summit to discuss promising strategies for cdfis facing challenges in the current crisis. the federal reserve bank of san francisco has conducted research on these topics through its center for community development investments, and the federal reserve bank of boston has worked with key partners to identify and promote best practices. are purchasing homes, which might otherwise sit vacant, from loan servicers who take possession of foreclosed properties. these homes are repaired and then sold or rented to families. because foreclosures and resulting vacancies impose costs on neighborhoods and local governments, facilitating occupancy can help maintain neighborhood stability. 16 these efforts are difficult, time consuming, and challenging to finance – exactly the kind of thing in which cdfis specialize. cdfis and other groups across the country are working hard to stabilize neighborhoods because they do not want to lose the progress attained by years, and sometimes decades, of investment in low - and moderate - income communities. indeed, this community stabilization work is important for the overall economic recovery. healthy and vibrant neighborhoods are a source of economic growth and social stability. cdfis and other community groups are already responding to the evident needs, but they will require many willing partners to ensure success in the long run, including governments, mortgage servicers, and mainstream lenders. strong community organizations can accomplish a great deal, but their capacity will be severely limited without the willing partnership of many other institutions. conclusion as the effects of the financial crisis and the resulting economic downturn have spread, there has been increased focus on preserving the gains made in low - and moderate - income communities over recent decades. accomplishing that objective requires preserving the institutions that helped build these communities. without strong cdfis, attracting investments and capital to rebuild and revitalize communities would be even more difficult. economic recovery, like economic development, is a bottom - up as well as a top - down process. through their work at the community level, cdfis, together with other community development organizations, can help build a sustainable recovery for all of us. in particular, recent research points to the adverse spillover effects of foreclosures on local property values. see, for example, zhenguo lin, eric rosenblatt, and vincent w. yao ( 2009 ), " spillover effects of foreclosures on neighborhood property values, " journal of real estate finance and economics, vol. 38 ( 4 ), pp. 387

not been spared from the financial disruptions of the past two years. while many cdfi portfolios have continued to hold up relatively well despite the financial crisis, rates of delinquencies and defaults on cdfi loans have risen as economic conditions have worsened. 8 in light of the mission of cdfis, it is not surprising that their financial concerns often reflect economic distress in the broader community : the once - thriving local business that is shutting its doors, the affordable rental housing complex that is struggling to make payments as tenants lose jobs and fall behind, and the after - school youth center that cannot repay its loan because its donor base has shrunk. even as the capacity of cdfis has become more constrained, economic conditions and pullbacks by mainstream lenders have increased the demands being placed on these organizations to provide credit and services. 9 traditionally, cdfis have been able to fund a majority of their operating activities through earnings. 10 however, those earnings have come under pressure as loan losses have risen, deal volumes have declined, and sources of capital for new activities have become more expensive or unavailable altogether. moreover, cdfis'main sources of outside capital and operating support are facing significant pressures of their own. funding from philanthropic sources has been reduced as endowments have suffered capital losses and rates of giving have declined. 11 indeed, two - thirds of foundations surveyed recently reported that they plan to reduce the number and size of their grants in 2009, and cuts are expected to continue in 2010 and beyond. 12 funding from state and local governments that sometimes support cdfis is also dwindling, reflecting increased fiscal pressures. and mainstream financial institutions have reduced their support of cdfis, both by providing less direct funding and by extending less credit in support of projects done in partnership with them. just as banks are adapting to the changing financial landscape, the community development industry can adopt changes to help it emerge stronger from this crisis. cdfis are taking steps to minimize losses, strengthen their portfolios and liquidity positions, and assess existing activities and planned investments in light of the worsened financial and economic environment. as cdfis move past the immediate hurdles, however, careful consideration will need to be given to more systemic changes to correct weaknesses that have emerged in the current cdfi model. notably, the reduction of funding by key participants highlights the importance of broadening and diversifying the industry's funding base. for example, in the case of the see " observations on the