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Coffi!llunity Affairs

Winter 1995-96

In tis Issue:

C 0 M M

■ Layering


■ CjtA(Q&A




N t)

• smvey,
• ~ a.len:4ar


l!'ederal Reserve Bank of MfnneaJelis

A Guide to State-Sponsored
Housing Finance Programs
Do you ever wish that all the housing finance programs sponsored
by your state government were
listed in one place? Now they are.
Enclosed in this issue is a listing
of state housing finance programs
for the six states that constitute the
Ninth Federal Reserve DistrictMichigan, Minnesota, Montana,
North Dakota, South Dakota, and
We started this project thinking that individuals and organizations involved in financing
housing would appreciate an easyto-use guide to the housing programs available in their states.
What we did not realize was the
number and complexity of the programs available from many of the
states. As the time our research
analyst spent researching these
programs grew and grew, we came
to understand the formidable task
that faces anyone trying to find the
right programs to fit varying needs.
We trust you will find the enclosed
listing a help to you in this task.
All of the information was obtained from state housing finance
agencies, and we want to thank
those agencies for helping us in
this project.
We see this guide as a first
edition, to be revised, updated, and
improved. We are also planning a

similar guide to state economic development financing programs.
Therefore, we would appreciate
any comments you have on the
content or format of this listing.
Please address such comments to
any of the Community Affairs staff
listed on the back page. For questions or comments about the substance of the listing, you may want
to contact the author, Cindy
Porter. ❖

The Art of Finding the Money Somewhere
A layer is a source of funds
used to fmance part of a project.
Typically, the term is used
when a proje'ct is financed using several sources of funds,
none of which alone provides
the needed funds.
As you look for ways to finance housing, whether you are
a fmancial institution, a developer, a community group, or a
person wanting to finance a
house or apartment building,

you almost always use more
than one source of fmancmg.
The simplest example is
the person buying a home
who provides some of the
money from savings and
then appli!:!s for a mortgage
for the rest. Slightly more
complicated would be the
combination of savings, a
gift from the applicant's








parents, and a mortgage for the
Or perhaps the person still
does not have enough for the down
payment from personal savings
and a parental gift and applies for
a second mortgage to c~wer the
remainder of the down payment.
This scenario, with four layers of
financing from private sources,
does involve some work and coordination. The parents have to
sign appropriate gift letters and
make sure the money is available
on the day of closing. Both the first
and second mortgage companies
have to qualify the borrower, perform an appraisal of the property,
investigate the title status of the
property, and so on.
This type of financing happens every day and is so commonplace many do not see it as
particularly challenging. But it
gets more complex when building
affordable housing, renovating
apartment buildings in low- and
moderate-income areas, and other
less common projects. For one
thing, financing can come from
public as well as private sources.
For example, a state may have a
loan program encouraging purchase or rehabilitation of properties in certain neighborhoods. This
loan may be added on to a conventional mortgage as part of the
financing package.
Or financing may be provided
by not-for-profit sources. For example, a foundation may have
some grant money available for
building affordable housing.
While grants from such sources are
likely to be too small to finance
the entire project, this source could
provide one layer of the financing
One town's success story

To illustrate how one city use4 layering to build affordable housing,

let's look at a project financed with
both money and in-kjnd services
through an unusual mix of source·s,
including local banks, government
agencies, community development
organizations, a not-for-profit
housing developer, and the local
high school and technical college.
The site of this project is
Bemidji, Minnesota, a city of
about 11,000 in northwestern Minnesota. This is how the project was
The Beltrami County Housing
and Redevelopment Authority
(HRA) formed the Beltrami
County Home Construction Partnership with three entities: the

Carpentry Program at Northwest
Technical College, the Bemidji
High School, and the Bemidji Area
Habitat for Humanity. The purpose
of the partnership was to build affordable housing in Bemidji.
The HRA requested a grant of
$152,400 from the C01pmunity
Rehabilitation Fund of the Minnesota Housing Finance Agency
(MHFA). This startup grant,
awarded in early 1994, was to fund
materials and some subcontracted
labor necessary to build four affordable single-family houses in
Bemidji each year.



The Bemidji Affordable Housing Project

Construction Financing
Community Rehabilitation
FL!nd-Minnesota Housing
Finance Agency
Northwest Minnesota Initiative
Bemidji Area Habitat for

In-kind Contributions and
Te~hnical Assi_stance
Bemidji Area Habitat for
Berotdji f-:!igh School
NortliW~~i Technical CollegeB.$.!Tlidji
H~~gw<i,ter s R~gional

Permanent Financing
Area financial institutlons
B~itrami County· Housing and
Redevelopment Authority
Minnesota Mortgage ProgramMinnesota Housing Finance
Rural Economic and Community
Development Agency
(formerly Farmers Home
Infrastructure Assistance
City of Bemidji



Photos courtesy of Bemidji Pioneer

Students in Bemidji, Minnesota, provide labor in the construction
of affordable houses in an innovative program combining local,
regional, and state efforts. Four houses will be built each year.
Top: Construction Technology II at Bemidji High School.
Bottom: Carpentry I at Northwest Technical College.




However, these funds could
not be used to fund administrative
costs or provide the technical expertise necessary to develop the
partnership. Therefore, the HRA
contracted with the Headwaters
Regional Development Commission (HRDC) to provide technical
assistance for the project.
The HRA also received a
$22,000 grant from the Northwest
Minnesota Initiative Fund. These
funds paid HRDC for administrative services necessary in the creation of this unique partnership.
Tax-forfeited lots from the
city and the county were used as
building sites for houses built by
Habitat for Humanity and the high
school. Unable to find suitable lots
on which Northwest Technical
College could build the houses, the
HRA purchased three acres and
subdivided it into 11 lots. The college built homes on two of these
The City of Bemidji helped
develop the infrastructure for the
subdivision. The City engineering
department prepared the specifications and bid out the infrastructure
construction. The City also agreed
to cover half the cost of paving the
streets in the entire subdivision.
The homes were appraised at
$70,000. The HRA established a
sale price of $61,000, and interested home buyers applied to local financial institutions for
financing. All applicants that
prequalified and demonstrated an
ability to close were considered
candidates for the purchase of a
home. Borrowers were free to apply for any loan program that met
their needs.









Loan programs used included
the Minnesota Mortgage Program,
which is an l\.1FHA first-time home
buyer program, and the Rural Economic
Development's Guaranteed Rural
Housing Program.
In addition to the financing
obtained through a local financial
institution, home buyers signed a
$9,000 second mortgage with the
HRA. This mortgage carries no
monthly payment of principal or
interest and will be forgiven if the
purchaser owns and occupies the
home for at least ten years.

The houses that Bemidji built


Two single-family homes were
built by Northwest Technical College on its campus then moved to
permanent sites in the subdivision.
These homes were sold in 1995 by
the HRA to lower-income households that might not otherwise
have had the opportunity to own a
One single-family home was
built in 1995 by students in
Bemidji High School's Carpentry
Program on a site and foundation
provided by the Bemidji Area
Habitat for Humanity. · The completed house was then donated to
Habitat, which sold it to an eligible
Finally, the HRA provided
material to the Bemidji Area Habitat for Humanity for the construction of its 1994 project. This home
was also sold by Habitat to an eligible family .

As is so often the case with layered projects, one person had the
vision for putting this project together and making it work. In this
case, Tim Flathers, community
development director at Headwaters Regional Development Commission, matched the community's
need for low-cost housing with an
educational opportunity for students at the local high school and
technical college. Others shared
his enthusiasm for the project.
According to Flathers, the industrial technology instructor at the
high school "really ran with the
idea," building a house almost entirely without the need for subcontractors.
The financial help of the
Northwest Minnesota Initiative
Fund and the Minnesota Housing
Finance Agency made this project
possible. With the continued involvement of the partners, the
Beltrami County Home Construction Partnership expects to add
four new single-family homes to
Bemidji's affordable housing
stock each year.
The HRA played a critical
role in this project. This five-member board, with no staff and very
limited financial resources, remained committed to its mission
and found a creative way to make
a difference in the community. ❖

Did you know ...
According to il:he
Business A ·
fl There are 6.
women-ownetl b
1ihe United State
► 85% ofalln
businesses today



, BA
err Int
The address is:


The ·internet. Are you interested?
The Community Affairs function of the Federal Reserve System has begun to consider
how to offer information and software through the Internet. We created this survey to
help determine what kind of information is most useful to you. If you are interested in
helping, please fill out this questionnaire and return it to us by fax: (612) 344-2702.
Naine of Organization:

Banks, please indicate asset size:



Less than $100 million
D Between $100 and $300 million
D Over $300 million

Have you ever explored the Internet?



Do you have a business or home
connection to the Internet?



If you don't have a connection,
are you considering one?

D Yes

□ No





□ No

Which topics interest you the most?

Community & Economic
□ Housing
□ Small Business
□ Development Finance
□ Consumer-oriented Information
□ Native American Credit Issues
□ Fair Lending
□ Discrimination
□ The Community Reinvestment Act
□ The Home Mortgage Disclosure Act
□ Bank CRA Ratings
D Mutual Funds

D List of Bank/BHC Applications
(received, approved, denied)
D Application Forms
□ Bank and Bank Holding Company
Banking Data such as:
□ FR-Y 6 Reports
□ Reports of Condition and Income
(Call Report)
D Uniform Bank Performance
Report (UBPR)
□ Bank Holding Company
Performance Report (BHCPR)

Other suggestions:

,___ _ _ _ _ _ _ _ _ _ _ Thanks for your t i m e ! - - - - - - - - - - - - - '



(Humor in Acronyms)
Housing programs, like government in general, are notorious for their acronyms. See how well you can
match the definition to the acronym. Answers are on page 9.

I. Apartment Renovation
Mortgage Program
2. Adjustable Rate Mortgage
3. Amortized Revocable
I. Community Housing In
2. Collateral Hypothecation
Illiquid Penalty
3. Cooperative Home
Improvement Program
I. Emerging Males RAP music
2. Econometric Multilateral
Acceleration Principal
3. Emergency Mortgage and
Rental Assistance Program
4. Examiners Might Really
Appreciate Parties ·


L It's not"an acronym
2. Home Ownership Made
3. Horrendously Onerous
Mortgage Encumbrance
4. There's no place like it

I. Rural Economic and
Community Development
2. After a train leaves its tracks
3. Researching Endlessly in
Creative Directions
4. Farmer's Home
1. Mutually Unauthorized
Reciprocal Liability
2. Funding for community art
projects aimed at
beautifying commercial
areas by painting fine art on
sides of dilapidated buildings
3. Minnesota Urban and Rural

1. National Halibut Surplus
2. Neighborhood Housing
3. Normalized Housing Stock
1. Substandard Restriction
2. Single Room Occupancy
3. Strategic Renovative
4. Sweat-equity Rally

I. A very distinguished butler
2. Community Housing
Affordability Strategy
3. Consultants Handle All the
1. Creative Lending
2. Community Land Trust
3. Cooperative Low-key
4. Famous sandwich with
cheese substituted for bacon
1. Horrendously Trying
2. Helping Thousands of
3. Hopelessly Technical
4. Housing Trust Fund
1. J:ederal Housing
2. Fair Housing Act
3. Funky Habitat Association


Community Reinvestment Act
Q& A
No time to call your regulator with
questions about the new CRA
regulation? Browse this column
for answers to some of the most
frequently asked questions about
the new regulation.
As always, you should seek the
counsel of your regulator for answers relating specifically to your
I have heard that I should
choose a large assessment
area, perhaps one much
larger than my old community delineation. Is this true, and if so,
what ifl can't serve all parts of this
assessment area? Won't my regulator criticize me?


Regulators will no longer
comment on the size of an
assessmen t area, either
whether it is too large or too small.
Also, regulators no longer expect
that the bank will be able to meet
the credit needs of the residents of
all parts of its assessmen t area.
Rather, the regulator will look to
see if the geographic distribution
of loans in that assessment area is
reasonable, given the bank's office
and branch locations. Regulators
will, however, be rating the bank
based on the proportion of the
bank's loans made in its assessment area. For a small bank to receive at least a "satisfacto ry"
rating, a majority of its loans must
be in its assessment area. Since the
larger the assessmen t area, the
higher that proportion is likely to
be, many banks have decided that


a bigger assessment area is better
than a smaller one.
(as defined by the regulation) use the strategic plan
option to get an "outstanding" rating without collecting data?


Yes. Only if a small
bank elects to be
evaluated under the lending, service, and investment test
must it collect and report the data
as discussed in Subpart C of the
regulation. However, any strategic
plan must include measurabl e
goals for helping to meet the needs
of its assessmen t area. Thus, a
bank electing to submit a strategic
plan and be evaluated under that
plan will likely collect data to
make sure that it is meeting these
goals. Remember that a small bank
can also obtain an "outstanding"
rating by meeting the standards for
a "satisfacto ry" rating under the
small bank test and either exceeding some or all of those standards
or making qualified investments
and providing services and delivery systems that enhance credit
availability in the bank's assessment area. Please note that when
the regulators examine a small
bank, they are looking for a level
of lending activities that will support a "satisfactory" rating. If you
are a small bank that wants to be
considered for an "outstandi ng"
rating, please inform your regulator at the start of the examination
(or earlier) so that the examiners
will perform an appropriate examination.


regulation . Is there any
thing else I should read to
help me better understand the new
CRA regulation?


Yes. The preamble to the
regulation (printed in
the Federal Register
Thursday, May 4, 1995, pp.
22156-22178) discusses many of
the issues that the regulators
considered as the new regulation
was drafted. By reading this
discussion, you will gain insight
into to how the drafters of the
regulation envisioned that it would
be implemen ted. Also the
examination procedures (available
from your regulator) will help you
understand how the examiners will
be conducting CRA examinations
of your institution.



I found four CRA notices
in the CRA regulation .
Which one do I use?

Register of Thursday,

May 4, 1995, each agency
sets out its CRA regulation, identical except for the enforcing
agency. Because the notice as set
out in the new regulation includes
the name of the institution' s regulator, be sure to pick the right notice to copy. The CRA notice for
banks regulated by the OCC is on
page 22187; for banks regulated
by a Federal Reserve Bank, page
22200; for banks regulated by the
FDIC, page 22211; and for thrifts
regulated by the OTS, page 22223.



- - . . . . _ Access to Credit: Women, Lend-

llllilllll""' ers, and Small Business Loans, a

new publication from the Federal
Reserve Bank of Chicago and the
Women's Business Development
Center, is intended to foster an
improved understanding of the issues that affect women's access to
small business credit. Call the Chicago Federal Reserve Bank,
(312) 322-5111.

A Primer for Beginning Rural
Housing Developers is for housing providers serving low-income
persons. The manual provides a
starting point for new organizations, with a basic overview of the
housing development process. It is
specifically geared to development
of affordable housing in rural areas. It costs $4 from Housing Assistance Council and must be
prepaid. HAC, 1025 Vermont
Ave. NW, Suite 606, Washington,
DC 20005, (202) 842-8600.

A Guide to HMDA Reporting:
Getting it Right!, Federal Financial Institqtions Examination
Council, 1995. In addition to providing the revised MSA, state, and
county codes that took effect January 1, 1995, this interim edition
takes into account amendments to
Regulation C that the Federal Reserve Board adopted in December
1994. For a free copy, call
(202) 452-3667.

Community Revitalization
• How to Be Your Own Developer: Making the Development
• Mortgage Lending: An Introduction for Community-Based
• Loan Origination Workbook: A
Workbook on Gathering and
Verifying the Information
• Loan Underwriting Workbook:
A Workbook on Analyzing and

Committing to Lend
• Loan Closing Workbook: A
Workbook on Executing the
Documents and Transferring the
Available for $10 each from the
Neighborhood Reinvestment
Training Institute by calling
(800) 438-5547.

Breaking Ground: A Beginner's
Guide for Nonprofit Developers,
a new publication from the Federal Reserve Bank of Dallas, is intended to help increase the housing
development capacity of nonprofit
organizations and to foster partnerships between nonprofits, govemmen t agencies, and financial
institutions. For a free copy (max.
of 50) call the Public Affairs Department of the Dallas Fed at
(800) 333-4460, ext. 5254. ❖

Lending in Indian Country
Cultural and Legal Issues

► Our popular seminar, "Lending in Indian Country," has been video taped. Produced by the

Federal Reserve Bank of Minneapolis, the video seminar addresses cultural differences, land
and title issues, tribal powers, sovereign immunity, tribal courts, collateral, remedies, and
other critical issues.
► Aimed at financial institutions, mortgage lenders, government agencies, attorneys. and banking regulators, the 5-hour video series and accompanying guide book are available for $135.
This price includes $10 shipping and handling, but does not include sales tax.
► Scheduled for release in April. Call (612) 340-6008 for a brochure and order form.



March 14-15
"Housing Tax Credit Compliance:
Managing for Long-Term Project
Success." Boston, Mass. Sponsor:
Housing and Development Reporter and The Institute for Professional and Executive Development,
Inc. Call (800) 473-3293 or
(202) 331-9230.
April 9
"Fed Focus." Topics include the
Community Reinvestment Act and
a keynote address on "Policies to
Promote Long-Term Growth" by
Reserve Bank president Gary Stern.
Sioux Falls, So. Dak. Sponsor: Federal Reserve Bank of Minneapolis.
Call (612) 340-6928.
April 22-24
"Building Rural Communities: Models for the Future." North Shore
Lake Tahoe, Nev. Sponsor: Rural
Community Assistance Corporation. Call (916) 447-2845.

May 5-7
"National Small Business Banking
Conference." Boston, Mass. Sponsor: American Bankers Association.
Call (800) 338-0626.
May 6-7
"Community Development Lending
Conference." Arlington, Va. Sponsor: American Bankers Association.
Call (800) 338-0626.

May 16-18
"1996 NADCO Annual Meeting."
Orlando, Fla. Sponsor: National
Association of Development Companies. Call (703) 812-9000.
May 19-22

June 24-25
"The Retail Industry and Economic
Development." Chicago, Ill. Sponsor: National Council for Urban
Economic Development. Call
(202) 223-4375.

September 29-0ctober 2
"CUED Annual Conference."
Cleveland, Ohio. Sponsor: National
Council for Urban Economic Development. Call (202) 223-4375.

November 9-12
"Ideas Worth Sharing: Best Practices for Economic Development."
Sponsor: National Association of
Development Organizations. Call
(202) 624-7806. ❖

"National Consumer Credit Conference." Boston, Mass. Sponsor:
American Bankers Association. Call
(800) 338-0626.

~ - - - - - Answer.s to HA!--- --~

Both 1. & 2. Apartment Renovation Mortgage Program and
Adjustable Rate Mortgage
3. Cooperative Home Improvement Program
EMRAP 3. Emergency Mortgage and Rental Assistance Program
HOME 1. It's not an acronym
RECD Both 1. & 4. Rural Economic and Community Development is the
new name for Farmer's Home Administration
MURL 3. Minnesota Urban and Rural Homesteading
2. Neighborhood Housing Service
2. Single Room Occupancy
CHAS 3. Community Housing Affordability Strategy
2. Community Land Trust
4. Housing Trust Fund
Both 1. & 2. Federal Housing Administration and Fair Housing


Articles may be reprinted if the source is credited
and we are provided with copies of reprint. Views
expressed do not necessarily represent those of
the Board of Governors of the Federal Reserve
System or the Federal Reserve Bank of

Community Dividend covers topics on community
reinvestment and neighborhood lending. It reaches financial institutions, community-based organizations development organizations, and government units throughout the Ninth Federal Reserve


We weic'!llle yom qucstioµ&@.C&ncems.

Please write or call:
J&Anne Lcw1illllll, Community Affairs Officer,
(612) 34()..(1913
Mm,garet Bloyer, Manager
(612) 340-5360

Ri~ Yiqnieson


Community Affairs, BSD

F:ederal Reserve Bank of MinnCl!l)Olis
P.0. Boll: 2!H

.Minneawli11, MN 5M-80-0191


Cindy Porter

~ Wablstmid
Add=a chaagcs/aMiti,01111:
Robert 'Willis: {612) 34-0-21.77