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F E D E R A L R E S E R V E C O M M U N I T Y B A N K O F A F F A I R S K A N S A S C I T Y D E P A R T M E N T W inter 1995 Affordable Housing Challenge In this issue... Affordable Housing Challenge ....................1 Partners: Changing a City with Affordable Housing ....................2 The City ......................3 Anatomy of a City Deal ..................8 Small-town Housing for Upriver People ....12 The Small Town ......12 Anatomy of a Small-town Deal ....14 Resources: Options for Affordable Housing ..................19 Perspectives: Getting the Deals Done ........................20 e all need a place to call home. Owning the place in which we live can help shape our lives by giving us stability, financial leverage, and a stake in the future of our communities. The benefits of home ownership accrue to both high- and lowincome home owners, and everyone benefits even more when the needs of all can be met. Taking a close look at affordable housing issues in one place can give us insight into ways to understand––and change––the communities in which we ourselves live, work, play and do business. In this issue of Community Reinvestment, we’ve written about two places where creative and determined people are bringing together a mixture of public and private resources to make home ownership possible for first-time home buyers. At first glance Omaha, Nebraska, with a metropolitan population of 589,000 and Macy, Nebraska, with a population of 836, have little in common. Macy is on the Omaha Indian Reservation and almost all its residents are members of the Omaha Tribe, which adds additional dimensions to the challenges of affordable housing there. We expected some similarities and a lot of differences in the development of affordable housing in these two very different places. What we found was a lot of similarity, and connections between Omaha and Macy that surprised us. C o m m u n i t y R e i n v e s t m e n t behind a trail of disgruntled customers and subcontractors and unpaid bills. “The commitment of people who are Holy Name Housing Corporation transformed what could have been a disaster into a real opportunity. The houses were completed and sold. As a result of the experience, HNHC now serves as the general contractor for its PARTNERS Changing a City with Affordable Housing hen their contractor walked away from the job of building 18 new homes in a low income neighborhood in North Omaha, Holy Name Housing Corporation calmly set about assessing their alternatives for completing the project. The forprofit contractor declared bankruptcy, but with its history of commitment to the residents of the community, quitting in the face of financial difficulties was not an option for this nonprofit community organization. Through the 13 years of their existence, Holy Name Housing Corporation (HNHC) has developed the ability to cope with crisis, as well as to successfully meet the continual challenges of developing affordable housing in the inner city. That ability is grounded in a clear sense of purpose, strong support from diverse segments of the community, and a sound business approach to their work. “The commitment of people . . . transformed what could have been a disaster into a real opportunity.” new homes. We believe that serving as general contractor will enable us to complete the houses in a more timely manner and to better assure the quality of construction.” How to Succeed in Housing... “Success for the corporation today is measured by a different barometer than in HNHC’s early days,” Sister Marilyn said, as she wrote about the organization’s “Adversity often does reveal the real strengths of individuals and communities.” “Adversity often does reveal the real strengths of individuals and communities,” said Sister Marilyn Ross, executive director of Holy Name Housing Corporation, in a recent progress report. “This last year the corporation faced one of its greatest challenges,” she wrote. “In December, the general contractor for our new homes literally walked away...leaving 2 W i n t e r 1 9 9 5 The City he Missouri River defines the eastern edge of Omaha. The western side evolves into an edge-city corridor, with large shopping malls, shiny high-rise buildings, upscale franchised restaurants, and bumper-to-bumper traffic at rush hour. North and South Omaha are described as mostly low-income, while middle-to upper-income people live in a comfortable old neighborhood west of downtown or in the western suburbs five or ten miles out. Near the river is downtown, with a mixture of old and new buildings, financial and government offices, and a scattering of empty storefronts. A few blocks northeast of downtown is the renovated Old Market area, with restaurants and shops and entertainment. To an outsider, Omaha seems solid and safe, the epitome of Midwestern living. (Could that be an image from the advertising messages of the insurance companies based in Omaha?) Sophisticated middle-income transplants from other, larger cities say it has all they’re looking for in a place to live––good neighborhoods, a fine museum, interesting restaurants, outstanding theater, a fine symphony and ballet, a minor league baseball team, enough flights in and out to make travel easy, and universities that ferment intellectual discussion and bring youthful energy to the city. One of the richest men in the world, Warren Buffet, lives in Omaha. It’s a place that is small enough to be convenient and large enough to offer amenities. Omaha is also large enough to have the problems of any urban area, but small enough, according to some, to make those problems solvable. Advocates for low-income residents struggle to close the gap in affordable housing between what’s available and what’s needed. neighborhood, we purchased and remodeled the house, knowing full well the home would be sold at a loss. A substantial amount of time was spent securing contributions from government, religious groups, the philanthropic community and private individuals to cover those losses, and to subsidize our operations. There were many weeks we struggled to meet payroll, and it seemed like the corporation was always a step away from closing its doors. “For HNHC to develop lowcost, quality rehab housing in an established neighborhood required an extensive learning curve. It took a number of years for us to become proficient in the business of developing affordable housing. And as each year went by, it became increasingly obvious that rebuilding the Holy Name neighborhood would require perseverance, patience, and all the creativity the corporation could muster. experience in learning that sound business strategies are as important to a nonprofit organization as they are for a for-profit business. “When we began operations in 1982, our entire focus centered on accomplishing the mission of rehabilitating and reselling homes while providing employment to residents in the construction trades. Holy Name Housing’s accomplishments were evaluated solely in terms of homes rehabbed and sold, with little attention paid to the corporation’s ‘bottom line.’ . . . sound business strategies are as important to a nonprofit organization as they are for a for-profit business. “In the initial years, it was not uncommon for us to invest more in a house than we were able to recapture after the home was remodeled and sold. If a dwelling was in a strategic location and seen as crucial to rebuilding the 3 C o m m u n i t y R e i n v e s t m e n t Omaha, HNHC successfully developed a 40- unit new construction site at Monmouth Park and began to build 190 new homes in the Kountze Park neighborhood in North Omaha. We formed a partnership with another nonprofit developer to produce both rental and home ownership opportunities in South Omaha.” A key to the success of Holy Name Housing Corporation, according to Sister Marilyn, is the commitment of partners––the individuals, government officials, business people, religious orders and philanthropic organizations who have invested time, effort and money in the work. “When I hear a partner talking with a sense of ownership about one of our programs,” she said, “I am reinforced in the belief that HNHC is not alone in its commitment to the mission.” “Our board and staff began to realize that being faithful to the mission was not enough. To survive in this complex business, we could no longer rely solely on operating grants, but would have to boost production and begin to realize a profit from the rehab and sale of homes. The focus of the organization would need to expand and include the construction of new homes, the development of neighborhoods beyond Holy Name parish boundaries, the involvement of additional for-profit and nonprofit partners, and a renewed commitment to becoming financially self-sufficient. “The construction crew and administration staff worked to increase efficiency, reduce construction costs and boost production. Slowly but surely, the corporation began to earn modest profits. With support from the City of 4 W i n t e r 1 9 9 5 rations and flexible-term mortgage financing for low- and moderate-income home buyers. Nonprofit community development organizations are paid $1,500 for each home they develop for lowand moderate-income people. Lenders contribute to the loan pool and operating expenses in proportion to their assets. First National Bank of Omaha, a family-owned bank with assets of $2.4 billion, is the largest participant, with a share of 49 percent. Robert In addition to building and rehabilitating more than 150 homes, HNHC has also been a catalyst for other affordable housing development. They have done this, first, by demonstrating that a nonprofit organization can build affordable housing, that lowincome people can successfully own their own homes, and that neighborhoods can be improved and stabilized through home ownership. Second, they have shared their expertise with other nonprofit organizations and business and government resource people, both in informal exchanges through shared community efforts and by providing consultation and technical assistance to other nonprofit organizations. Third, HNHC has initiated efforts to develop resources for affordable housing. An example is the Affordable Housing Directory, comparable to the multiple listing offered by real estate agents, that HNHC is compiling to offer information to low- and moderateincome buyers regarding the price range and locations of renovated and new houses produced by nonprofit developers. Another example of resource development is the formation of Omaha 100, a nonprofit intermediary that provides financing and technical assistance for development of affordable housing in Omaha. “. . . it takes courage and experience to successfully finance affordable housing.” Horak, vice president at First National of Omaha, believes it takes courage and experience to successfully finance affordable housing. “Without the city’s second mortgages,” said Horak, “and without tax credits, tax increment financing, and Community Development Block Grants, it wouldn’t happen. The sad thing is, with all the fees and ‘monkey business,’ it ends up costing more to use these programs than to do conventional financing. But without the programs, it wouldn’t get done.” Commercial Federal Bank is the third-largest participant in the Omaha 100 loan pool, with 15 percent of the assets. Recentlyretired Vice President John Maloney worked with Sister Marilyn Ross and with former Omaha Mayor Mike Boyle to start the organization, and bank president William Fitzgerald hosted the first meeting of lenders to discuss the idea of pooling funds for affordable housing. Commercial Federal has been a consistent leader in commitment to Omaha 100 ever since. The Spinoffs: Omaha 100 Omaha 100, Inc. was formed five years ago, with a goal to support the development of 100 new affordable homes per year in Omaha. Nine lenders participate in this nonprofit intermediary, which was designed to generate operating money for communitybased housing development corpo5 C o m m u n i t y R e i n v e s t m e n t expertise in affordable housing for other organizations. A group known as “Homes,” consisting of about a dozen nonprofit developers of affordable housing, meets regularly to discuss issues and consider how they can have a greater impact, individually and as a group, on housing. John Griffith of Commercial Federal is now vice chairman of Omaha 100's board. “We see this partnership as successful, both short- and long-term,” he said. “It’s an effective and efficient way to help people become home buyers who may not otherwise have the opportunity.” Griffith emphasized the importance of the partnerships, and of earning the confidence of city and federal partners. The resources are scarce, and nonprofit groups sometimes compete for program dollars and operating funds. City Partners One participant in this group is Mike Maroney, who is president of the New Community Development Corporation (NCDC). In three short years, NCDC has established a track record of success by developing 116 units of affordable rental housing in North Omaha. They recently completed their first project in South Omaha, which is a 48-unit multifamily development designed to accommodate people The resources are scarce, and nonprofit groups sometimes compete for program dollars and operating funds. In Omaha, however, the nonprofit organizations also cooperate and work with one another as partners. Capacitybuilding assistance has been provided by Holy Name Housing Corporation for other organizations, and Holy Name Affordable Housing has been created as an affiliate of HNHC to help build 6 W i n t e r 1 9 9 5 hood for 75 years, and provided the initial leadership and financial resources for Holy Name Housing Corporation. who are hearing-impaired. Maroney initially had reservations about developing a site in South Omaha. “These two sides of town traditionally don’t like each other,” he said. “Both areas have primarily low-income residents, and North Omaha has a large African American population, while South Omaha has a mixture of Hispanic and white people. We didn’t know how an organization that has been known as a North Omaha group would be received on the other side of town.” The ease of their acceptance in a different part of town may in part have been because of the networks that have been established and the respect that the nonprofit development corporations have earned in the city. “The limited resources are becoming more limited,” Maroney said. “Nonprofit housing developers need to continue what we’re doing as organizations with our own identities, and we also need to collaborate with other organizations when we can. We’re all working to help people who have a hard time finding affordable housing on their own.” Maroney is a new member of the Omaha 100 Board of Directors, and hopes that in the future, that organization can expand its services to include support for multi-family housing. “The real leaders in community-based housing development . . . have been the residents . . . who believe that their neighborhoods can be better places to live.” Leadership Assumptions “Civic leaders such as former Mayors Mike Boyle and P.J. Morgan, staff in the city’s planning department, and business leaders like John Maloney of Commercial Federal were willing to encourage and support housing initiatives.” Since its formation in 1982, HNHC’s work has been premised on the belief that: • Homeowners are important to revitalization of a community, and if decent and affordable housing is available, low- and moderate-income families will invest in it. • Low- and moderate-income buyers pay significant amounts of rent, which can be translated into payments to buy homes. • Low- and moderate-income residents can be good risks for financing. • Resources can be developed to provide financing and home buyer counseling. “The real leaders in community-based housing development,” said Sister Marilyn Ross, “have been the residents of North and South Omaha who believe that their neighborhoods can be better places to live. Two Redemptorist priests and Ed Vaughan, a resident of North Omaha, founded Holy Name Housing Corporation. The Redemptorists had been active in the Holy Name neighbor- Holy Name Housing Corporation has acted on those beliefs. They have changed the neighborhoods in which they work. By sharing their commitment and what they have learned, they have helped others develop the capacity to provide affordable housing. Together, these partners have changed lives, and they have changed a city. 7 C o m m uWn i i n t yt eR r e i 1n 9v 9e s5 t m e n t COMMUNITY ISSUES: ANATOMY OF A CITY DEAL What factors in the community kept the market from meeting these needs? Monmouth Park Subdivision Omaha, Nebraska • Quality housing that would attract low- and moderate-income families was not available. • There were problems identifying qualified home buyers and working with a population of predominately first-time buyers. THE PROJECT: Development of 40 new two- three- and fourbedroom homes by Holy Name Housing Corporation, a nonprofit 501(c)(3) housing development corporation, on an 8 1/2-acre former hospital site in the inner city. • Potential home buyers needed home ownership counseling and financial assistance. • Low-income borrowers experienced difficulty in obtaining financing to buy homes in the area. PROJECT GOALS: The specific project goal was to build quality affordable houses, with 80 percent of the homes targeted for buyers who earn up to 80 percent of the median income and 20 percent targeted to buyers who could earn up to 120 percent of the median income. • A saturated rental market, a low-income population, and costs of development led private developers to propose high-density, lowincome rental housing rather than singlefamily, owner-occupied homes for the site. Broader project goals included: Why wasn’t the project initially attractive to investors? • Continuing efforts to revitalize North Omaha by assisting an economically and socially troubled neighborhood. • There had been no positive signs of growth or redevelopment in the area for 20 years. • Achieving greater stability and economic integration in the neighborhood by building new houses that would attract higher income buyers. • Property values were depressed and appraisals on single-family homes were low. • Construction costs were high. • Increasing the number of families who are investors in North Omaha neighborhoods and who would then be more likely to demand good services, participate in community organizations and provide positive role models for others. • Demand was high for new construction in suburban areas where development was simpler and profit margins were higher. • There was a perception that building in the area would mean significant losses because of theft and vandalism. • Developing a project that would be a catalyst for further economic development in the area. PARTNERS AND RESOURCES: Who was the “visionary”? Sister Marilyn Ross, the board of Holy Name Housing Corporation, and the city planning department recognized that the old Immanuel 8 W i n t e r Hospital site was a strategic area for North Omaha. It was across the street from North High School, on a major North Omaha thoroughfare, and was adjacent to the original Holy Name Housing Corporation target area. It was in a neighborhood plagued by social and economic problems. 1 9 9 5 Ehrhart Griffin Engineers assisted HNHC with site preparation. Alley Poyner Architects designed houses that were compatible with the neighborhood at reduced fees. Who was the “point person” who managed the process? Public sector: The Planning Department of the City of Omaha offered technical assistance and provided funds for site preparation and for 0% second mortgages from the city’s U. S. Department of Housing and Urban Development (HUD) Community Development Block Grants (CDBG). Sister Marilyn Ross managed the Monmouth Park project. It’s not typical for the visionary to also be the point person with the management skills to implement projects, but Sister Marilyn said the need was there and she learned by doing. (And although it may not seem typical for the visionary/point person to be a nun, the Sisters of Mercy Order of the Catholic Church has been active in housing development across the country.) Fees for professional services such as legal work were reduced through the utilization of tax credits from the State of Nebraska for services provided to nonprofit organizations. Joe Vaughan, construction manager for Holy Name Housing Corporation, played a significant role in completing the project when a for-profit builder failed to complete his contract to build 40 homes. Ed Vaughan and Louis Wright of HNHC played key roles in identifying potential buyers and assisting them through the steps of obtaining financing. Were there potential partners who did not participate? If so, why? No potential partners were ruled out initially, and everyone who expressed interest or was asked to participate did so. Who were the resource partners? What resources did each bring to the project? GETTING THE DEAL DONE: Private sector: What was the cost of the project and what percentage was covered by each partner? FirsTier and First National Banks provided construction financing for the project. The Affordable Housing Program (AHP) of the Federal Home Loan Bank of Topeka provided subsidies to assist buyers with down payment and closing costs. First Mortgages Attorney Thomas Pogge of Kutak Rock Law Firm provided both paid and pro bono legal work in establishing Omaha 100, a consortium of lenders committed to funding lowincome borrowers. Equity Down payments, 3% of first mortgages Omaha 100, Inc. served as a local intermediary to qualify buyers and provide financing for them. Administration/Capacity Building Omaha 100/banks City CDBG funds Grants Subordinated Mortgages City of Omaha FHLB AHP Site Preparation City CDBG funds The Local Initiative Support Corporation (LISC) is a national intermediary that helped fund the establishment of Omaha 100. Total 9 $1,941,725 54% 26% $908,400 $45,000 $58,252 2% $550,000 15% 3% $65,000 $6,100 $20,000 $3,594,477 100% C o m m u n i t y R e i n v e s t m e n t How long did it take? There was difficulty in finding a builder who could build houses with an attractive design at affordable costs. The City of Omaha and HNHC and the builder with the lowest bid worked together to eliminate some costs in every design to make it possible for the builder to meet cost expectations. Site preparation began in 1990, when HNHC acquired the property from the City of Omaha. The first homes were completed and sold in August of 1991. The last ten houses of the 40 in the subdivision are under construction; all but four have been sold. There was a drastic increase in cost of materials when lumber prices went up. To prevent HNHC from losing buyers because of an increase in sales price, the City of Omaha agreed to increase the maximum amount of the second mortgage from $20,000 to $25,000. What issues or problems were encountered and how were they overcome? There was a problem in site preparation with discovery of a significant amount of rubble at the site and presence of asbestos in this rubble. To solve the problem, the City of Omaha increased the budget to cover additional costs. A problem with significant delays in construction because of a shortage of concrete was solved when HNHC assisted the builder in 10 W i n t e r 1 9 9 5 finding other sources of concrete and agreed to increase the contract price to cover costs. There were delays in construction due to a competitive building boom in West Omaha, which resulted in: (a) difficulty finding subcontractors for the project; (b) the builder concentrating his efforts elsewhere on projects where he realized a greater profit. The longest delay in construction was created when the builder went bankrupt and walked away from the project, leaving a number of unhappy prospective homeowners. Eleven homes were only partially finished, and 14 homes were still to be completed. This situation was solved when HNHC’s construction supervisor and crew took over the completion of the houses and responded to all complaints by buyers who had previously worked with the builder. HNHC realized it had the expertise to become the general contractor. All of the uncompleted homes have been finished and construction has been started on all remaining lots. With the knowledge gained from this experience, how might you do things differently another time? HNHC underestimated its own ability to serve as construction manager for this project and opted to contract with a for-profit builder. HNHC has always insisted on quality work and found working with a builder a frustrating experience from the beginning. Because the builder contracted with subcontractors who contracted with workers, HNHC was often three times removed from the person who actually did the work. When inferior work was done it became very difficult to have the problem remedied. SECOND THOUGHTS: Is the project meeting community needs as expected? Why or why not? The limited profit available to the for-profit builder reduced incentives to complete the project in a timely fashion and made the developer reluctant to respond to buyers when that response would increase costs. The project has met community goals: • It provided new houses in an area that had not experienced any redevelopment. • It attracted buyers with incomes from 50 percent to 120 percent of median income to invest in the neighborhood. The Monmouth Park Homeowners Association secured grant money to provide landscaping services and supervised activities for children in the subdivision. Since making the decision to serve as general contractor for new houses, HNHC has experienced a marked improvement in its relationship with buyers and an improvement in the quality of work completed by subcontractors. It would have been easier to achieve the desired economic diversity in the neighborhood if HNHC had had an established marketing program to let potential residents know about the homes and also about the amenities offered by this neighborhood, with its good schools and convenient services. • The project has contributed to other development in the area. Since it was started, a new grade school and YMCA have been built across the street from the subdivision. A deteriorated rental apartment building has been torn down. 11 C o m m u n i t y R e i n v e s t m e n t Small-town Housing for the Upriver People n some ways Macy, Nebraska is like a company town. It is the site of the tribal headquarters of the 6,000-member Omaha Tribe, and most jobs of Macy residents are related to the business and services of the tribe. Those jobs include health care, education, government administration, and working in the tribe’s casino, which is a few miles south on the Iowa side of the Missouri River. Approximately two hundred tribal members work at the casino, and in addition to jobs, it provides income for the tribe that is comparable to tax revenue in other small towns. Income is being used for such things as public improvements, education trust funds, and expanded health care services. Plans are under way to also use these funds for economic development and job creation. As in many small towns, existing housing in Macy has deteriorated with age, and new housing is expensive to develop. Public housing has been built for low-income residents, and a senior center provides housing for elderly people. As the population of the town grows, however, the need for housing increases, especially for people with moderate incomes. To address the need for affordable housing, a nonprofit community development corporation was formed in 1993. The Native Council on Economic and Community Development, known as NED, has built four houses and a fifth is near completion. A variety of private and public The Small Town ou have to be watching for the small sign on Nebraska Highway 75 or you’ll miss the turnoff to Macy. In the quiet center of the town is a park where two men sit chatting on a sunny afternoon. A dog occasionally wanders across a dusty street. When school is out, the sidewalks become lively with children of all ages. Rolling hills and farm country surround the town, which is two miles west of the Missouri River and an hour’s drive north of the city of Omaha. Macy has three churches, one gas station, and a tiny post office. A community college is on one hill in the town, and offices and a school are on another. The directions to the economic development office involve going past the football field and the church, turning right at the second corner, and going to the building across the street from the yellow house. Macy is close enough to Omaha for people who have moved to the city to easily come back to visit family and friends. In the traditional language of the Omaha Tribe, the word “Omaha” can mean “against the current or the wind,” or “upriver people.” Both geographically and culturally, Macy is far enough up the river from the city of Omaha to make residents sometimes feel as if they live in a different world. resources have been brought together to provide financing and technical assistance for construction of 33 more homes in the next two years. NED’s focus is on building affordable housing in Macy, but some funds will also be available 12 W i n t e r 1 9 9 5 only in Indian country. Other program resources, such as the Federal Home Loan Bank of Topeka’s Affordable Housing Program that provides equity grants for down payment subsidies or interest rate write-downs, have been available elsewhere but only recently became available on reservation trust land. It’s a complex partnership that has been brought together to build affordable housing for “the upriver people” in Macy. NED and the Omaha Tribe have been successful in creating that partnership because of clear goals, diligent research, persuasive grant writing, and effective relationship-building. to members of the tribe to assist with down payments for homes off the reservation, for buying or rehabilitating existing homes, and for housing development in other areas of the reservation. Some of the resources being used, such as the HUD Indian Home Program, are available SOMEONE SAID... “I’m a firm believer that if things are going to improve in this world, you have to work to better your own community and neighborhood. You have to start at home.” –– Mary Frances Pflug Omaha homeowner 13 C o m m u n i t y R e i n v e s t m e n t PARTNERS AND RESOURCES: ANATOMY OF A SMALL-TOWN DEAL Who was the “visionary”? Private Home Ownership Assistance Project The Omaha Reservation, Macy, Nebraska Clyde Tyndall, Chief Tribal Officer and a former member of the Omaha Tribal Council, took the lead in organizing NED in 1993 to spur private housing development on the reservation. Who was the “point person” who managed the process? THE PROJECT: Construction of 38 three-bedroom affordable homes on the Omaha Reservation by the Native Council on Economic and Community Development (NED), a nonprofit 501(c)(3) housing development corporation. Tom Rice is the new executive director of NED and will manage the process. In his former capacity as the Omaha Tribal Planner, he wrote grant applications for funding from public and private resource organizations and coordinated economic development activities between NED and the tribe’s economic development office. PROJECT GOALS: To build houses at a cost of $65,000 to $70,000, educate potential buyers about home ownership, provide job training, and spur other economic development. Ed Vaughan served as interim executive director of NED. He was formerly director of housing for the Holy Name Housing Corporation in Omaha, Nebraska, where he had experience with construction and with identifying, pre-qualifying and training potential home buyers. George Scott, who preceded Vaughan as executive director, worked with the Omaha Tribe in planning the project. COMMUNITY ISSUES: What factors in the community kept the market from meeting these needs? What issues kept the project from being initially attractive to investors? Who were the resource partners? What resources did each bring to the project? High unemployment and lack of commercial businesses have been barriers to outside housing developers. Private sector: The Mercy Housing Development Corporation of Denver, Colorado is providing technical support and construction financing. There was no property ordinance that would provide for foreclosure and eviction if necessary, and a leasehold mortgage instrument was needed to protect both the banks’ and the tribe’s interests in case of default. Norwest Bank of Omaha is providing matching funds for Mercy Housing’s commitment of construction financing. Other banks have also expressed interest and willingness to make loans. The nearest lending institution is in a small town 15 miles away, and that bank has assets of less than $20 million and limited capacity to participate. Commercial Federal Bank of Omaha made first mortgage loans on the first two houses that were built. Countrywide Mortgage of Omaha has agreed to make first mortgage loans on houses being built in the Fall and Winter of 1995. High construction costs were a problem. Although there was strong interest in owning homes, there was a lack of experience in home ownership by most members of the tribe. 14 W i n t e r The Federal Home Loan Bank of Topeka (FHLB) is providing Affordable Housing Program (AHP) funds through Norwest Bank of Omaha to assist buyers with down payment and closing costs. 1 9 9 5 An agreement was entered into in the Fall of 1995 between the Omaha Tribe and the Enterprise Foundation, a national nonprofit organization that provides assistance to local governments, other nonprofits and other local organizations in improving housing conditions and opportunities for lower-income people. The foundation will provide technical assistance, training, planning and strategy assistance, and access to shortterm capital financing at below-market rates. The Holy Name Housing Corporation provided earlier technical assistance to NED on forming the organization, planning, and establishing relationships with lenders and with government agencies. Their affiliate, Holy Name Affordable Housing, has provided a grant for training and administration. Public sector: Dustan Shepherd of First Americans Mortgage Company in Kansas City, Kansas, has provided technical assistance. The Omaha Tribal Council approved a new property code which defines the powers of the Tribal Court in property disputes and specifies other guidelines regarding property ownership. They also set aside land for home sites. Thomas Pogge of the Kutak Rock Law Firm in Omaha has done legal work for the tribe and has provided some free legal work for NED. He also suggested lenders at Commercial Federal Bank become involved and consider making loans on the reservation. The Indian Health Service of the Omaha Tribe has allocated funds to pay for water and sewer hookups in site preparation. Fannie Mae and Freddie Mac have agreed in principle to purchase loans on reservation trust land in the secondary market. The State of Nebraska Department of Economic Development made a grant of HUD Home dollars for construction and for 15 C o m m u n i t y R e i n v e s t m e n t administration and training costs. The state has also provided technical assistance, and designated NED as a Comprehensive Housing Development Organization (CHDO), making it eligible for Affordable Housing Program funds. indicated their willingness to participate in making affordable housing loans on the reservation. The Nebraska Investment Finance Authority (NIFA) has expressed interest in assisting NED with home mortgage financing at a subsidized rate. The U. S. Department of Housing and Urban Development (HUD) is providing Indian Home Program funds for administrative expenses and for second mortgages of up to $35,000 each that will be forgiven after 10 years provided the first mortgage obligation has been met. The U. S. Department of Housing and Urban Development has a recently-funded loan guarantee program, Section 184 of the Housing and Community Development Act of 1992, which makes the purchase of homes in Indian country more attractive. The program provides a guarantee of up to 100 percent to banks on loans on reservation trust land and also protects tribes’ interests in maintaining the trust status of the land by giving family members and then the tribe first rights to purchase the land in case of default. Section 184 is a potentially useful tool for the Omaha Tribe, but because of other financing commitments, NED has not initially used it for this project. Were there potential partners who did not participate? If so, why? Other potential partners have expressed interest, and may become involved as the project moves forward and the capacity of NED to utilize resources expands. The First National Bank of Walthill, Nebraska and First Americans Mortgage Company in Kansas City, Kansas have 16 W i n t e r GETTING THE DEAL DONE: Three more were finished by November 1995 and another was expected to be done by the end of the year. The project is scheduled for completion by the end of 1997. What was the cost of the project and what percentage was covered by each partner? First Mortgages Subordinated Mortgages HUD Indian Home Program State Home Program FHLB AHP $1,449,005 What issues or problems were encountered and how were they overcome? 38% 37% $834,000 $360,000 $187,500 Equity Minimum 1% down payment from home buyers $548,800 15% Site Preparation Indian Health Service $100,000 3% 1 9 9 5 The first home built in the project was a modular house, and in an effort to keep construction costs low, it was built without a basement. However, an additional $7,000 spent on basement construction would have added substantial usable space to the house and added $10,000 to its value. All subsequent homes are being built with full basements. How long did it take? Although initial costs can be somewhat lower for modular-built housing than for conventional or “stick-built” construction, the modular housing provides less opportunity for local jobs and job training. A conventional contractor has been found to build the next seven houses. The number of partners involved increases the complexity and difficulty of the project, resulting in more time, higher expenses, and a greater need for skillful coordination. NED was created in 1993. Construction was completed on the first new home in early 1995. A recent election resulted in five of the seven members of the Tribal Council being new, which Administration/Training HUD Indian Home Program Omaha Tribe State Home Program Holy Name Affordable Housing Total 7% $147,247 $50,000 $40,000 $25,000 $3,741,552 100% 17 C o m m u n i t y R e i n v e s t m e n t may lead to a new direction and modified goals for NED. Although NED was established as a separate corporation to help ensure continuity for development, its activities are linked closely with the activities of the tribe’s elected leadership. ways they could make home loans in Macy. The tribal council and tribal members needed time to discuss legal and financial alternatives and to reach consensus about how to move forward in support of home ownership and development. NED had the problems that are typical of any new nonprofit group starting a new development project. Time was needed to clarify goals and to communicate those goals to community members, elected leadership, funders and other resources. The board did not have experience with housing development, and affordable staff with the needed combination of skills and experience was difficult to find. Problems have generally been solved by consistently moving toward goals with patience and persistence, by using technical assistance from outside resources, by learning through experience and making changes when appropriate, and by building relationships and trust among the participating partners. SECOND THOUGHTS: Time was also needed to educate community members about home ownership, and, for some potential buyers, to save money for down payments or to pay off debts and clear their credit histories. Is the project meeting community needs as expected? Why or why not? Enthusiasm is high as the fifth home nears completion. Nineteen people have been prequalified for loans in the next year. Although some had hoped for faster housing development, Home mortgage lending on Indian reservations was a new concept for lenders, which meant more time was needed to work with them to find 18 W i n t e r 1 9 9 5 RESOURCES most people feel that progress has been realistic given the complexity of the project. More Information Available With the knowledge gained from this experience, how might you do things differently another time? “I don’t think there’s much we could have done differently,” said NED executive director Tom Rice. “We had an opportunity about a year ago to add a lender to the NED board, and although he was an excellent person, at that time we were uncomfortable with the idea of someone from outside the tribe being on the board. Now that we have more experience, we might consider such a possibility with a different perspective. However, we just needed to go through some of this process on our own. All things considered, we’ve probably done as well as we could have.” or more information about the organizations written about in this publication, contact the following: Sister Marilyn Ross, Executive Director Holy Name Housing Corporation 3014 North 45th Street Omaha, Nebraska 68104 (402) 453-6100 Cynthia Swoopes, Executive Director Omaha 100, Inc. 2424 Cuming Street Omaha, Nebraska 68131 (402) 342-3773 Mike Maroney, Executive Director New Community Development Corporation 6655 Sorensen Parkway Omaha, Nebraska 68152 (402) 571-3100 Tom Rice, Executive Director Native Council on Economic and Community Development P. O. Box 297 Macy, Nebraska 68039 (402) 837-4082 For more information about affordable housing programs, contact your local, county, state or regional development offices. The Federal Reserve Bank of Kansas City offers a one-day workshop on financing housing development that provides a framework for identifying financing gaps and finding available enhancements to fill those gaps. In addition, the Spring 1996 issue of Community Reinvestment will include a resource guide to federal housing and economic development programs. 19 C o m m u n i t y R e i n v e s t m e n t knowledge and skills needed to build partnerships and do all the tasks that need to be done. Find sources for financing. Work through the intricacies of land acquisition. Prepare the site. Locate qualified builders who will work in an out-of-the-way location for a smaller profit. Balance cost and quality. Find qualified home PERSPECTIVES Getting the Deals Done maha, Nebraska and Macy, Nebraska are unique, as is the place each of us calls home. Our communities have a character of their own, created by people and geography and circumstances that are both chosen and accidental. Because of the differences in communities, an approach to solving problems may work in one place but not another. Some of the programs and resources for affordable housing that are available in Omaha are not available in Macy, and vice versa. However, the issues of developing affordable housing in this large city and small town on the eastern edge of Nebraska are similar. We think these issues are the ones any community faces with developing affordable housing. In many ways, the connections between Omaha and Macy were surprisingly literal. The interim executive director of the Native Economic Development organization in Macy was the former director of housing for the Holy Name Housing Corporation (HNHC) in Omaha. HNHC has provided consulting services and technical assistance for the Native Economic and Community Development Council. Commercial Federal Bank in Omaha was the first financial institution to make home mortgage loans in Macy, and was also the lead institution in forming Omaha 100. The steps taken in both places have been the same: Identify needs. Decide that something can be done about those needs. Organize community and political support. Develop/borrow/buy the Our communities have a character of their own, created by people and geography and circumstances that are both chosen and accidental. buyers. Educate potential home buyers about credit and the process of buying and maintaining a home. The influence of leadership has had a strong impact in Omaha and in Macy, and the characteristics of that leadership are the same: Vision. Creativity. Expertise. Determination. Commitment to grass-roots participation in the decision-making process. Political savvy. Patience. Persistence. Skill. Integrity. SOMEONE SAID... “The house shelters daydreaming, the house protects the dreamer, the house allows one to dream in peace.” –– Gaston Bachelard The Poetics of Space Volume 3 Number 2 Community Reinvestment is published twice a year by the Community Affairs Department of the Federal Reserve Bank of Kansas City, 925 Grand Boulevard, Kansas City, Missouri 64198-0001, 816-881-2867 (phone), 816-881-2252 (fax). Free subscriptions and additional copies are available upon request. Material may be reprinted or abstracted provided Community Reinvestment is credited. Please provide the Community Affairs Department with a copy of any publication in which material is reprinted. The views expressed are not necessarily those of the Federal Reserve Bank of Kansas City or the Federal Reserve System. 20 Larry G. Meeker Vice President and Director of Community Affairs John A. Wood Assistant Vice President and Community Affairs Officer Sharon M. Blevins Editor and Community Affairs Coordinator Desktop Publishing: Tane Lee and Ann Thomson Photographs: Sharon Blevins