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Community Development
in community and economic development

Federal Reserve Bank of Atlanta
Volume 7, Number 1
Spring 1997

In This Issue
Catholic Housing Services and Parish
Government Form Partnership
Houma, Louisiana marshalled its forces to
create a long term gain from the losses
incurred during Andrew
Houma Loans
Neighborhood Housing Services of New
Orleans Celebrates 20 Years of Service
CEII serves Escambia County and NW
Florida with small business loans and

Nonprofit Success Stories
by Courtney Dufries
Nonprofit organizations come in all shapes and sizes. Some specialize in
selected industries, such as health care, the environment, or education.
Others provide technical assistance or advocacy for specific issues, such
as homelessness. One organization that is critical to the success of so
many community development efforts is the nonprofit developer. This
issue of Partners takes a look at a handful of successful nonprofit
Managing a nonprofit organization is not an easy task. Many nonprofit
developers are undercapitalized and struggle to fund long-term projects
while covering short-term operating expenses. Like for-profit businesses,
many nonprofit organizations do not survive and while we celebrate and
feature the successes, we must also look at the reasons many fail.

A common misperception surrounding nonprofits is that their role is to
resolve difficult issues by taking on more risk when, in fact, the solution is
Seven Principles for Reducing
in sound business management and creative thinking to structure well
thought-out transactions. Mismanagement, fraud, and internal disputes
Governor Lindsey Will Be Missed
have caused the failure of more than one organization. Poor investments,
including socially desirable investments, and weak internal controls have
contributed as well. A strong board of directors combined with an
experienced executive director or president is critical; a weakness in
About this issue
either area can be devastating. Many nonprofit developers begin as
advocacy groups and, over time, develop the expertise needed to
revitalize communities. While advocates have an important—often critical—role in promoting change, it is very difficult for
any one organization to be both full-time advocate and developer.
Developers must build consensus and satisfy diverse needs to ensure a project's completion. A nonadversarial approach
is often critical to obtain funds to finance the project and ensure that sufficient development fees are generated to cover
overhead expenses. For this reason, most successful nonprofit developers operate in a traditional business-like manner
and choose advocacy roles carefully.
Advocacy groups, on the other hand, have different funding sources and different agendas. Their role is to advocate

change and their methodologies are necessarily different. Direct confrontation of issues is frequently the desired course of
action. Although some advocates work quietly behind the scenes, others are out in the open, occasionally with organized
protests and media coverage. Advocacy groups raise important issues and can help ensure timely and meaningful
responses to significant concerns.
Nonprofit organizations are as diverse as the people in the communities they serve and all have important roles.
Recognizing their importance to community development programs, we have dedicated this issue of Partners to featuring
four types of nonprofit organizations that have each achieved success.
The first organization featured is a religious-based nonprofit that successfully utilized a multi-bank community development
corporation, with a loan consortium, the local government, and other funding sources to assist low- and moderate-income
persons in two small Louisiana communities. Consensus building was key to success.
Next, celebrating it's twenty-year anniversary, is the Neighborhood Housing Services of New Orleans, a local
NeighborWorks affiliate. This NHS has developed its expertise in neighborhood renovation programs, and has become the
seventh largest producer of affordable housing in the NeighborWorks network, which is sponsored by the Neighborhood
Reinvestment Corporation.
Florida is home to many strong community-based organizations. To explore the business nonprofit perspective, we are
pleased to feature an article on Community Equity Investments, Inc., a successful business loan fund. And while on the
topic of lending, we also feature an article from a nonprofit loan fund located in Michigan that shares its experience in how
loans perform, and offers seven fundamental concepts to ensure timely loan repayment.
We regret that this newsletter presents only a sample of the many fine nonprofit organizations operating today. However,
since its inception five years ago, Partners has featured articles on over 25 nonprofit organizations, and will undoubtedly
feature many more. Perhaps your organization will be next!

Community Development

Catholic Housing
Services and
Parish Government
Many communities feature fine development programs. However, Houma, Louisiana is worthy of special
recognition because the community effectively combined several good programs to address its affordable
housing needs. Houma (pronounced HO ma), has developed a loan consortium that utilizes innovative
underwriting criteria, a bank-sponsored community development corporation, a religious-based nonprofit
housing development organization, a Federal Home Loan Bank grant program, and community development
block grants to address its housing needs. And it all began with a hurricane.
Hurricane Andrew blew through Houma in August of 1992, leaving serious losses behind. When residents
started to rebuild, they had to comply with stronger building codes, which drove up the cost of housing.
Recognizing the community's needs and accompanying problems, several organizations began working
together to develop solutions.
Catholic Housing Services of the Diocese of Houma-Thibodaux, a nonprofit 501(c)(3) organization, was
formed with a $1 million grant provided by Catholic Charities USA. Some of the money is used for emergency
repairs, but most is used to provide home ownership opportunities for low- and moderate-income persons.
Catholic Housing Services (CHS) is building three bedroom, two bath "5-Star Energy Efficient" homes using
20 percent recycled materials, in the downtown area. In fact, even with central heating and air conditioning,
the state energy department projects approximate annual heating expenses of only $67, annual cooling
expenses of only $145, and annual water heating expenses of only $132.
"The church wants to provide decent, safe and affordable houses because they are a foundation for a more
stable family, and ultimately, a more stable community," said Paul James, CHS executive director. "In 25
years, there has been no new residential construction in that [downtown] area, but by concentrating on that
area we hope to raise the neighborhood wealth."
The grant money was made available for down payment assistance and closing costs, or to "buy down" the
interest rate, as needed to qualify families whose annual income is less than 80 percent of the area median
income. (Eighty percent of the median income is currently $25,600 for a family of four.) For an example of the
loan financing terms, see the "Houma Loans" article.
To help offset higher building costs following the hurricane and to qualify low- and moderate-income home
buyers, the Terrebonne Parish consolidated government has provided $120 thousand in additional grant
money through the federal HOME program. The Federal Home Loan Bank of Dallas has provided a $74,000

grant through its Affordable Housing Program to reduce the selling price of the homes built by CHS. First
National Bank of Houma submitted the Federal Home Loan Bank grant request on behalf of CHS.
According to Sharon Roppolo, First National Bank executive vice president, "The parish government has been
a significant partner in planning the development." The cooperative effort has paid enormous dividends.
"Private developers are showing an interest in the area now," said Roppolo, "and it has stimulated other
homeowners to renovate their own houses. That's exactly what you want to happen."
Several local financial institutions also formed the Houma Terrebonne Community Development Corporation
to address similar needs. Starting with a $100,000 loan pool, the multi-bank CDC will acquire vacant lots or
homes in need of significant rehabilitation. Working through the CDC, new homes will be constructed or old
homes repaired and sold to low- and moderate-income families. The CDC will have the flexibility to do
whatever is necessary to address the local housing needs, including subcontracting with Catholic Housing
Services to construct the homes. The CDC hopes to build or renovate about twenty homes this year.
Members of the CDC include First National Bank of Houma, Hibernia Bank, St. Mary Bank and Trust
Company, South Louisiana Bank, Banc One, and Regions Bank. In addition to their initial contributions, the
CDC members have all provided innovative affordable housing financing programs.
According to Sharon Roppolo, "Our expectations are that these loans will perform as well as our conventional
loans. The home buyer education program provides the financial tools and techniques to help people manage
their money. People realize this is an opportunity they won't want to forfeit."
For more information contact Paul James, CHS Executive Director, at 504/876-0490.

Community Development

Houma Loans
by Courtney Dufries
In an effort to increase the number of families eligible for home purchase through Catholic Housing Services,
the nonprofit has joined forces with local financial institutions to develop an innovative financing program that
allows home buyers with incomes as low as $7 per hour to qualify for the purchase of homes selling for
Using an innovate financing technique called the "Deposit Option" that was featured in the Federal Reserve
Bank of Atlanta's Partners software program for home mortgage lending, the nonprofit can more than double
the number of families eligible to purchase homes with the grant money available. The following is an example
of how the financing program is designed to work in Houma.
Given the criteria presented in the example provided, an applicant could only afford to purchase a $44,538
home, even with assistance provided by the Federal Home Loan Bank of Dallas and the Terrebonne Parish
government. However, by utilizing a $6,600 grant from Catholic Housing Services, the applicant could meet
the underwriting criteria and qualify for a $62,000 purchase.
Unfortunately, providing a $6,600 grant for each potential home buyer is expensive and would prevent the
nonprofit from providing other services, such as emergency grants, land acquisition expenses, or other
programs. By utilizing the "Deposit Option" the nonprofit can reduce the amount of the grant needed from
$6,600 to only $3,272.
Applicant Income:

$1,200 monthly (assumption)

Home Purchase Price:


Applicant out of pocket expenses:

$1,500 (assumption)

Federal Home Loan Bank assistance:


Terrebonne Parish assistance:


Taxes and Insurance on home:

$40 monthly

Applicant's other debt payments:

$90 monthly (assumption)

Underwriting Criteria:
"Front" ratio *


"Back" ratio **


Term in months:


Interest rate:


* (Principal, Interest, Taxes and Insurance/monthly gross income)
** (PITI plus other monthly debt payments/monthly gross income)

Required principal and interest payment:


Applicant's available payment:



$49.58 /mo.

Catholic Housing Services Assistance needed:


Deposit Option alternative assistance provided:


Catholic Housing Services Savings on each home: $3,328
Instead of paying $6,600 at closing to qualify the applicant, the nonprofit will instead place a $3,272 deposit in
a non-interest bearing account with a local participating lender. Each month for the first year the applicant
pays $296 to cover the principal and interest payment on the loan, and the deposit account is automatically
debited $49.58, the shortfall needed to cover the loan.
In the second year, the applicant increases his or her monthly payment by $4.96, to $300.96, and the deposit
account is debited for only $44.62. The subsidy is phased-out over ten years this way so that each year, the
applicant pays an additional $4.96 a month for that year, until the subsidy is completely eliminated. As a result,
the amount of subsidy needed is only $3,372 instead of $6,600, saving the nonprofit $3,328 per home!
Of course, the lender and nonprofit should use caution to ensure that the borrower is never hit with an
excessive payment increase (referred to as payment shock) in any year. In this case, the monthly increase
amounts to only $4.96 a month, or .41 percent of the applicant's monthly income. In other words, the borrower
needs an income increase of less than 5 cents an hour each year for the 10 year subsidy period to never
experience a relative increase in payments. And the nonprofit can double the number of families it helps
qualify for loans. Further, because the lender has the deposit account as additional collateral on the loan, its
initial loan to value ratio is lower than it would be without the deposit option.¨
For more information on the "Deposit Option," contact Courtney Dufries at the Federal Reserve Bank of
Atlanta, (404) 498-7226.

Community Development

Neighborhood Housing Services of New Orleans
Celebrates 20 Years of Service
Neighborhood Housing Services of New Orleans, Inc. was founded in 1977 as a private nonprofit 501(c)3
corporation that works to revitalize declining neighborhoods and provide affordable housing opportunities. It
was established on the premise that a partnership of neighborhood residents, financial institutions, businesses
and local government can stop the decline of, promote reinvestment in, and restore pride and confidence in
urban neighborhoods.
NHS of New Orleans, Inc. (NHS) is part of a nationwide network of NHS programs known as NeighborWorks.
The NHS is a part of a national initiative launched by the NeighborWorks Network to create 10,000 first time
home buyers by 1998. In the first 36 months of the campaign, members of the NeighborWorks Network have
assisted 6,530 people in becoming home owners. NHS of New Orleans is the seventh highest producer in the
national Network.
The NHS mission is to revitalize New Orleans neighborhoods by reducing the number of substandard or
vacant houses and by increasing the number of homeowners.
In 1992, NHS began its Campaign for Home Ownership because it realized that increasing the number of
homeowners in the city was necessary for the preservation and revitalization of its neighborhoods. Since then,
NHS has assisted people in becoming first time home buyers through a program that offers both individual
counseling and classroom training.
Loan pre-qualification and counseling is designed to help clients determine how much they are able to
borrow to buy a home. If clients have problems with their credit or they lack savings, NHS helps them develop
a plan to overcome these obstacles. Very often, a person who does not qualify initially for a loan will be able to
qualify within six months to a year. NHS provided counseling for 453 families in 1995.
Home ownership training includes twelve
hours of classroom instruction taught by
lenders, realtors, appraisers, insurance
representatives, credit counselors and NHS
staff to prepare first-time home buyers for the
realities of buying, rehabilitating and
maintaining a home. Training is offered in the
NHS office each month. In 1995, 299
individuals graduated from the NHS classes.

Pictured above are before and after photographs of a
Franfort St. home renovated by NHS of New Orleans.
Financing was provided by Banc One and city CDBG

Financial assistance is also available to
qualified low-income clients in the form of
amortized, low-interest second mortgage loans. While these loans must be repaid on a monthly basis, the
interest rate does not exceed 3%. NHS often provides these loans in tandem with a conventional lender, using
public funds to leverage private resources. NHS also provides loans to low-income homeowners, along with

counseling and construction management services to facilitate the renovation of their homes. NHS originated
and closed 19 rehabilitation loans in 1995, and currently has 129 loans in its loan portfolio with a total value of
In 1995, 171 individuals became first-time home buyers through the assistance provided by NHS. Their
average income was $22,438, significantly less than the $34,700 median income for New Orleans. NHS
assistance resulted in $7,382,077 in first mortgage loans. The average loan amount was $51,264.
NHS's and similar programs have been developed in concert with the local/private sector by the
Neighborhood Reinvestment Corporation (NRC), headquartered in Washington, DC, with regional offices
located throughout the country. NRC is a congressionally funded nonprofit corporation whose board of
directors is comprised of top representatives of the financial regulatory agencies including the Federal
Reserve Board, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the Federal
Deposit Insurance Corporation, the National Credit Union Administration, and the Secretary of the Department
of Housing and Urban Development.
For more information about the NHS of New Orleans, contact Lauren Anderson, Executive Director, at

Community Development

By Daniel R. Horvath
Community Equity Investments, Inc. (CEII) serves Escambia County and Northwest Florida with small
business loan programs and affordable housing. The author is president of the CDC.
CEII is a Community Development Corporation ("CDC") which was first incorporated in 1974 as a federallyfunded CDC. It is a community-controlled nonprofit corporation with a board of directors comprised of 21
members, 11 of whom are directly elected by residents of Escambia County, Florida. CEII has a 12-member
Funding for CEII program administration is derived primarily from earnings generated by its small business
lending programs, affordable housing rentals and management fees, and its sale of single family units. A small
annual grant is received from the Florida Department of Community Affairs for general administration. A
substantial annual grant is received from the SBA for the provision of training and technical assistance
services to SBA microloan borrowers.
CEII'S Revolving Loan Fund ("RLF")
In 1982 CEII initiated its first small business loan program—the "RLF"—which was funded with a loan from the
Florida Department of Community Affairs ("DCA"). With the active participation of its bank partners, CEII
developed the RLF structure still in use today. CEII extensively promotes the RLF, and other small business
loan programs and handles all intake of program inquiries. CEII provides potential applicants with a package
that describes the program, contains a loan application, credit release form, and other program specific
materials. CEII provides technical assistance to applicants in completing their application and in assembling
all accompanying documentation. Once a final application is in hand, CEII staff presents its loan
recommendations to its Loan Committee, comprised of CEII board members who include both community and
bank representatives. All loans must be approved by both the loan committee and by the full CEII board of
directors. The Committee generally sets loan terms and conditions—particularly with regard to collateral
requirements. Following approval the loan is processed for closing and CEII staff prepares a complete loan
closing documentation package.
CEII makes the RLF loan directly to the borrower and the loan is immediately sold to one of CEII's bank
partners for servicing just like any other loan. CEII uses a simultaneous closing procedure coordinated by the
bank's closing attorney. The attorney is free to use either CEII's standard loan documents or to substitute the
bank's forms.
The participating bank brings a check for the full amount of the loan to the closing. CEII then endorses all loan
documents over to the bank which provides CEII with payment in full for the loan. CEII then purchases a
certificate of deposit from the bank for 90% of the full loan amount, providing an additional source of loan
collateral available to the bank as a first recourse. Additional bank losses may be recovered from borrowerprovided collateral for the loan. Any remaining collateral after the bank has recovered its loss is transferred
back to CEII where the CDC initiates its own loan collection activity on any defaulted loans.

This entire process is structured to best meet the needs
of the bank and the nonprofit. The bank is purchasing a
small business loan typically located in an economically
distressed community and, in most cases, made to
either a minority or woman-owned business enterprise.
Thus, it is an excellent commercial CRA-type loan and
is virtually risk free in light of the 90% guarantee CD
From CEII's standpoint there are a number of
advantages. Ten percent of each loan (not required to
go into the guarantee CD) is leveraged back into its
loan pool to make additional loans. A rate of 7% is paid
to CEII on the 90% guaranty CDs thereby providing
CEII with a source of administrative funds. All of the
The photo above was taken at DeVilliers Gardens
by Joan Harris, Vice President of Housing, CEII;
RLF loans are set at a 10% interest rate which yields
hand coloring by Elizabeth Black, Community
the bank a 3% return for its loan servicing activity.
Affairs Staff, Federal Reserve Bank of Atlanta.
The relationship between CEII and the participating
banks is governed by a Bank Participation Agreement which is entered into with all participating banks.
Generally, the bank that refers the client to CEII is given the first right of refusal to purchase that particular
loan. In a nonbank referral situation, CEII generally uses the client's existing bank relationship or provides a
list of participating banks and gives the client the option of selecting the bank he or she prefers.
Since inception of the RLF in 1982, CEII has closed 120 small business loans totaling $4.6 million, for an
average loan size of $38,000. Loans can not exceed $75,000, have a maximum term of 15 years and have an
interest rate of 10%. Applicant businesses must be located in Escambia County, Florida.
The program was established to promote job creation in addition to providing business ownership
opportunities to minority and women owned businesses. Therefore, CEII carefully tracks job creation in order
to make sure it complies with the Florida statutory mandate that at least one new job be created for every
$10,000 loaned. CEII's 120 loans have created 575 new jobs, for an average cost per job of only $8,000. All
funding for this program was derived from the Florida Department of Community Affairs' CDC Support and
Assistance Program with 0% interest loans having a maximum 15 year term.
CEII's cumulative loss rate after 14 years of lending is still only 3% of its total $4.6 million portfolio.
SBA Microenterprise Loan Program
Based upon its successful operation of the RLF program, CEII became one of the first 35 intermediaries
selected to participate in a new SBA pilot program to provide loans of under $25,000. CEII's first loans were
made in 1992 and the program has grown to its present loan portfolio level of 88 loans totaling $1,430,000.
The average loan size is $16,000 and the program has created or maintained a total of 210 jobs, at an
average cost of $6,800/job.
Applicant businesses may be located anywhere in the 15 county microloan service area, which ranges from
Pensacola to Tallahassee. The SBA now has provided CEII with three separate loans totaling $2 million with
an interest rate averaging 5%. All of CEII's microloans are set at 11% and carry a maximum 5 year term.
The program is run in much the same manner as the RLF program—with one major difference. The SBA does
not permit the sale of microloans and requires the lender to handle all loan servicing in-house. Thus, CEII
does not sell its loans to participating banks as is done with the RLF program. This requirement forced CEII to
develop in-house loan servicing capacity.
In addition to providing loan funds, the SBA provides CEII with a substantial grant to provide extensive training

and technical assistance services to its borrowers. CEII has one staff member dedicated solely to this function
—providing periodic training classes and ongoing one-on-one technical assistance. The SBA microloan
program was structured to have less restrictive collateral requirements than those established for the RLF
CEII anticipated a higher loan loss rate, but one that would be ameliorated by the provision of its technical
assistance and training services. The end result has been a cumulative loss rate of 10% of its total microloan
portfolio, less than its projected loss rate of up to 15%. Staff is continually seeking to reduce this rate through
a combination of increased loan servicing and additional training and technical assistance services.

CEII's Small Business Loan Programs
Revolving Loan Fund (RLF)
• Loans may not exceed
• Loans bear an interest rate
of 10%.
• The maximum loan maturity
is 15 years.
• Applicants must be located
in Escambia County, Florida.

Microenterprise Loan Program
• Loans may not exceed $25,000.
• Loans bear an interest rate of
• The maximum loan maturity is 5
• Applicants must be located in the
15 county microloan service

USDA Intermediary Relending Program
• Loans may not exceed $150,000.
• Loans bear an interest rate of
• The maximum loan maturity is 15
• Applicants must be located in the
15 county microloan service

The SBA permits its microloan intermediary lenders to borrow a maximum of $2.5 million and CEII expects to
reach that limit within the next 18 months. SBA requires repayment via ten year amortization and, as CEII
pays down its loans, it expects to continue borrowing in order to maintain a capitalization level of $2.5 million
for its SBA microenterprise loan program.
USDA Intermediary Relending Program ("IRP")
Building upon its previous successful loan program operations, CEII applied for designation as an
Intermediary Relender under the USDA (formerly the Farmers Home Administration) IRP. CEII became the
first IRP recipient in the State of Florida in late 1995 and closed its first loan in early 1996. Since then CEII has
approved two additional loans for a cumulative total of $255,000, or an average loan size of $85,000.
IRP loans are available in the same 15 county lending area established for CEII's SBA micro program.
However, applicant businesses must be located in "rural" areas, defined as either unincorporated areas or
incorporated areas with populations of 25,000 or less. Loans can be as high as $150,000, carry a 15 year
maximum term and bear an interest rate of 10%. The USDA provided CEII with an initial $1 million loan (at 1%
interest) for 30 years.
Northwest Florida Black Business Investment Corporation ("BBIC")
Utilizing its network of contacts with state-wide and local banks in Northwest Florida, CEII spearheaded the
effort to form the Northwest Florida BBIC. The BBIC program was established by the Florida legislature, which
allocated $5 million for the formation of local BBICs serving distinct service areas in the state. The BBICs were
required to generate at least $500,000 in bank investments which would then be matched 1:1 by the Florida
Black Business Investment Board ("BBIB").

Summary of Small Business Program Results as of
January 31, 1997
Revolving Loan Fund Program

Total Dollars Loaned Out

Total Number of Loans

Number of Jobs Created


$ 4,600,000 Average Size Loan

120 Average Cost Per
575 Start-up Businesses

$ 38,000

$ 8,000


$ 140,000 Percentage of Loss


$ 1,360,000 Average Size Loan

$ 16,000

Microloan Program
Total Dollars Loaned Out

Total Number of Loans

Number of Jobs Created


85 Average Cost Per
210 Start-up Businesses

$ 6,500


$ 135,000 Percentage of Loss


$ 255,000 Average Size Loan

$ 85,000

Intermediary Relending Program
Total Dollars Loaned Out

Total Number of Loans

Number of Jobs Created


3 Average Cost Per
18 Start-up Businesses

$ 0 Percentage of Loss

$ 17,500



Cumulative Small Business Loan Programs
Total Dollars Loaned Out

Total Number of Loans

Number of Jobs Created


$6,215,000 Average Size Loan

208 Average Cost Per
803 Start-up Businesses

$ 275,000 Percentage of Loss

$ 30,000

$ 7,853



Six programs were established in the larger urban areas of the state when CEII undertook the capitalization
effort for the seventh BBIC, in Northwest Florida. CEII was successful in generating $550,000 in bank
investments which were matched with $500,000 from the BBIB. The program provides loan guarantees to
African American owned businesses located in the 15 county Northwest Florida region (ranging from
Pensacola to Tallahassee). CEII operated the program on a day-to-day basis for about two years when the
program was spun off for independent operation by the bank investors. The program is now based in
Affordable Housing Rental Programs
CEII has also developed and now manages 109 units of rental housing. Some of those are described below.
Management fees and other revenues derived from this activity form a major component of CEII's overall
administrative budget.
DeVilliers Gardens is a 16 unit multi-family development financed with federal low income housing tax credits
(purchased by the Enterprise Social Investment Corporation—affiliated with the Enterprise Foundation), state
SAIL funds, a variety of other state funding, and conventional bank financing from Barnett Bank. The project is
100% occupied and is in its sixth year of operation. The total project cost was $750,000.
VBL Apartments is a 90 unit multi-family development consisting of three separate locations: Villa Barcelona,
Belmont Gardens and the Lloyd House. The units were acquired from the Resolution Trust Corporation
("RTC") under its affordable housing disposition program. Financing was provided by the Federal Home Loan
Bank of Atlanta through an AHP loan to AmSouth Bank and then to CEII; state and local HOME program
funds; and a mix of other funding. The 90 units were fully rehabilitated and are predominantly rented to
Section 8 tenants. The total project cost was $1.2 million.
Gadsden Street consists of three single family homes. The CDC acquired a single unit through a HUD
foreclosure and was fully rehabilitated. Its large double lot permitted the construction of two new single family
units on the same property. Site acquisition and construction financing were provided by the Calvert
Foundation and the Florida Community Loan Fund. Permanent take-out financing was provided by the
Escambia County HOME/SHIP program and conventional financing from Compass Bank. The total project
cost was $135,000.
Stoddert Place is a 320 unit multi-family development presently under construction at a 25 acre location in
West Pensacola near the Naval Air Station. It is a joint venture partnership between CEII and the Richman
Group of Florida. A total of $22 million in project financing was provided via federal low income housing tax
credits, state HOME funds, hurricane relief funds and other financing. These units will be rented primarily to
eligible low- and moderate- income tenants.
Most rental developments are managed by CEII's wholly owned subsidiary, Gulfside Real Estate Development
Corporation. With the completion of the Valcour Villas Development, CEII will have a total of 117 units of
housing under direct management.
Affordable Housing Ownership Program
In partnership with Escambia County, CEII has developed a home ownership program for low- income county
residents. The county provided a small grant to cover the program's administrative costs for the first year and
then uses its HOME and SHIP program to provide substantial subsidies to first time low income home buyers.
The subsidy level can be as high as $12,000 on a home costing $60,000 thereby reducing the first mortgage
loan to $48,000. CEII's home ownership program director conducts classes on home ownership at least twice
a month. These classes are aimed not only at providing information on home ownership and CEII's programs
in general, but also to pre-qualify buyers to buy its new and rehabilitated units. At the present time, CEII has
completed two new construction units which are both three bedroom/two bath units with a brick exterior. They
sell for under $60,000 and with the county subsidy programs, the price is reduced to $48,000 or less. CEII has
also completed five rehabs—most of which were HUD foreclosure acquisitions. HUD provides non-profit

buyers who will re-sell to low-income families with discounts off the purchase price of up to 30%. This makes
the units quite affordable for lower income families.
All required rehab work is completed and CEII then seeks to match these units with participants in its home
ownership classes who have been pre-qualified by participating banks. CEII has also acquired vacant sites on
which it will build up to twenty new homes for sale to low income families.
Financing for the Home Ownership Program is provided by the Calvert Foundation ($200,000), the Florida
Community Loan Fund ($50,000), and Escambia County ($200,000). The Calvert and FCLF funding make up
a working capital pool which is used for site acquisition and construction/rehab financing.
Other CEII Programs
The Jones Building is a Civil War vintage Victorian home that was acquired by CEII and restored to serve as
its office building. It is listed on the National Register of Historic Places and provides CEII with community
identity in the historic Belmont DeVilliers district. The property is valued at $175,000 and was acquired and
restored with federal funding under the now-terminated Title VII CDC program administered by the Community
Services Administration (formerly the Office of Economic Opportunity—OEO).
Neighborhood Incentive Program provides small matching grants to Neighborhood Councils to complete
community self-improvement projects such as park development, purchase and installation of playground
equipment, home repairs, youth education classes and a variety of other activities. CEII generates funding
from donations from financial institutions and businesses in the Pensacola area.
Additionally, CEII contributes a portion of net earnings to ensure that adequate ongoing grant capital is
available to meet the demand for these matching grants. Grants do not exceed $2,500 each and, since 1982,
CEII has provided a total in NIP grants of $92,500. These small grants have made possible the completion of
community improvement projects valued at $325,500.
For additional information contact CEII at 302 North Barcelona Street, Pensacola, Florida 32501. Telephone
904/444-2234; Fax 904/444-2264.

Community Development

Seven Principles for Reducing
by David Boehlke
David Boehlke is the former executive director of the nonprofit neighborhood revitalization group
Neighborhoods Inc. in Battle Creek, Michigan. In this article, he discusses seven principles to help ensure
mortgage loan performance. This article was excerpted with permission from Banking and Community
Perspectives, a publication of the Federal Reserve Bank of Dallas.
For many lenders, the fact is that delinquency rates in special lending programs are consistently higher than
for conventional loans. Yet good performance on affordable mortgage products is vital to the long-term
success of these programs.
National studies have shown that very small down payments, coupled with limited monthly reserves and past
credit problems, can lead to higher delinquency levels on home mortgages.
The central issue isn't the trend toward higher delinquency. The focus should be on reducing this rate,
because we must continue to serve this home ownership market. As Americans, we honor families who
struggle to buy and improve their homes. We recognize the social and economic costs of declining home
ownership. As a nation, we have seen too many neighborhoods fail as caring homeowners left, replaced by
owners without the resources, skills, or desire to improve or maintain properties.
Too often the failure of a loan is discussed in terms of the impact on the borrower, the lender or the lending
product. The failure of a loan also profoundly affects a neighborhood. Neighboring property owners might not
be aware of one or two foreclosures, but if a pattern of delinquency and foreclosure becomes common,
owners recognize that something isn't working. As a result, they start omitting improvements or delaying
maintenance. All too quickly the pattern of disinvestment is confirmed.
Finding some answers
Fortunately, there are answers. One possible answer comes from Battle Creek, Michigan, a small industrial
city recovering after years of decline. City leaders, local lenders and residents are restoring older
neighborhoods through a complex series of innovative strategies that rely heavily on special lending
The principal strategy emphasizes lending for home purchase and for home repair. In less than five years,
Neighborhoods Inc., a nonprofit organization, has made more than 700 loans that have helped create more
than $10 million in direct investment. These loans have significantly increased the percentage of home
ownership, while creating higher standards for home maintenance.
With lending at its core, good loan performance is critical. Local leaders decided to build good performance
into the design and delivery of loan products. My staff and I worked on this goal. To accomplish this, we

committed ourselves to flexible but sound underwriting and to seven principles for reducing delinquency:


Maximize the buyer's responsibility. It isn't beneficial to hold a buyer's hand through every
aspect of the purchase. Each borrower needs to work hard to buy if ownership is to be valued.
Neighborhoods Inc. expects borrowers to resolve their own credit problems, to track down missing
records, and to establish and follow a good day-to-day budget. Neighborhoods Inc. also tries to
include some modest sweat equity, so home buyers develop a stronger sense of personal
Neighborhoods Inc. reaps a remarkable return on its investment by lending a few hundred dollars
for the home buyer to landscape the front yard. This results in a more involved buyer, a more
attractive home, an improved neighborhood, and we believe, a better loan.


Prepare customers to make sound choices. If counseling starts after the signing of a purchase
contract, we have lost the best opportunity to help buyers. Buyers need to think through whether
homeownership is right for them, what features the house should have now and for resale later,
and what role the neighborhood plays in the purchase decision. Because lower income buyers
don't have as many choices, helping them make a well-considered one is even more important.
Higher priced houses usually benefit from more active real estate agent involvement in the
education process. We need to build the same training investment into the purchase of more
affordable properties. A well thought out decision will produce a more committed borrower.


Remind borrowers they are buying a house and a neighborhood. Encourage informed buyers
to study the dynamics of the local real estate market. Borrowers need to analyze trends in the
neighborhoods. A home purchase isn't done just to acquire good housing; it is a major investment
and should show equity growth. One of the fast tracks into the American middle class is a sound
home investment. An attractive house in a neighborhood of declining value usually ends up on an
economic sidetrack. The resulting frustration can undermine good payment behavior.


Promote the goal of being "house proud." Being proud of one's home is a powerful impetus to
action. Affordable housing programs that only bring houses to a code-compliant condition may
undermine a sense of pride in ownership. We've never met the buyer who proudly points to a
house as meeting minimum standards. Home buyers need to feel their homes are special: an
oversized kitchen, a gracious porch, or even just an outstanding paint job. If borrowers face some
tough payment decisions, pride in the home is a compelling force to assure we get paid.


Provide counseling about the decision to buy, not just about the process of buying.
Deciding about buying a home and committing to pay the mortgage on time should be the focus
for counseling. The mechanics and jargon of buying—title searches, right of recision, the
distinction between a note and a mortgage—are important only if the fundamental decision to
borrow is a sound one.
Too often a loan is approved contingent on reading a home-buying guide or attending a class. Yet
much of what is learned will soon be forgotten. The important lesson: when borrowers know why
they are buying, they will know why it is important to pay.


Structure financing as close to conventional as possible. Even when the nonprofit
Neighborhoods Inc. was involved in financing, we made every effort to place part of the financing
with a conventional lender. Because most special programs are for people with a deficiency (too
little down payment, insufficient earnings, shaky credit, etc.) these lending programs might imply a
second-class status. Psychologically, this signals that the customer qualifies only because of
failing. We need to mitigate this by showing that a conventional lender is enthusiastic about taking
on part of the loan.
Having a nonprofit agency approve your loan is one thing; having a bank approve it is quite
another. Banks serve mainstream Americans who don't need a special program. Reinforcing a

standard bank relationship will strengthen the borrowing and lead to a long-term customer who


Continue a positive relationship after closing. In most conventional loans, lenders pay close
attention to borrowers at purchase or at delinquency. This is reasonable. However, in a truly
comprehensive affordable lending program, the borrower is critical as an ongoing element in the
neighborhood. Committed, enthusiastic home buyers encourage others to buy a home and
reinforce current homeowners who are considering property improvements.
A borrower committed to the neighborhood is more likely to be committed to loan repayment.
Therefore, a good counseling program keeps an ongoing relationship with the borrower and
encourages involvement in the community. There is a positive relationship with the counselor if
payments become a problem.

Shared Expectations
Do these principles pay off? I believe they do. Of course, good underwriting is critical to a good loan, but
delinquency control also must be built into every aspect of the purchase and mortgage process.
Is Neighborhoods Inc. pleased with the results? No. At any given time, troubled loans account for 2 percent to
3 percent of the group's portfolio. This is unacceptably high for a conventional lender. For a nonprofit
organization lending to buyers who don't qualify for conventional lending, Neighborhoods Inc. expected higher
However, expecting higher delinquency and accepting poor loan performance are not the same thing.
Neighborhoods Inc. continues to work hard to strengthen performance, not just to guard its portfolio or its
borrowers, but to protect neighborhoods.
How can this experience apply to lenders in the [other] Federal Reserve District? In today's highly competitive
business environment, most lenders can't reasonably attempt the sorts of initiatives used every day by
Neighborhoods Inc. in Battle Creek. Fortunately, most lenders have a relationship with a similar nonprofit
already. What is absent isn't the opportunity; what is usually missing is the expectation that nonprofit groups
set high performance standards and meet those standards.
It is far too easy for both nonprofit groups and conventional lenders to accept poorer performance from special
lending programs. The challenge is to set higher goals and then to structure the programs and resources to
attain the goals.
The result will be more than good portfolio performance and more than just stable home ownership. The result
also will be renewed strength for our older neighborhoods.

Community Development
Governor Lindsey Will Be Missed
On February 5, 1997, Lawrence B. Lindsey announced his resignation from the Board of Governors of the Federal Reserve System.
Governor Lindsey joined the American Enterprise Institute as a resident scholar and will hold the Arthur F. Burns Chair in
Economics. He will also serve as Managing Director of Economic Strategies, an economic advisory service based in New York City.
Governor Lindsey served on the Board of Governors for over five years, acting as Chairman of the Board's
Consumer and Community Affairs Committee. A strong advocate of community development lending and
investment activities, he also served as Chairman of the Board of the Neighborhood Reinvestment Corporation.
Active in the Federal Reserve's Sixth District, Governor Lindsey generously devoted his time to touring
redevelopment activities in many communities, most notably New Orleans and Atlanta, and he was a featured
speaker at numerous conferences and seminars.
Governor Lindsey received many honors and awards over the years, and he has been widely quoted for his insight
into monetary policy, tax policy, and community development.
His contributions to community development activities have been significant and we will miss his presence.

Community Development
Information provided on upcoming events of other organizations should be viewed as strictly informational and not as an
endorsement of their activities.

Apr. 24-25*Dallas, TX: National Association of Affordable Housing Lenders' Southwest Regional Conference. Sponsors: Federal
Home Loan Bank of Dallas, Federal Reserve Bank of Dallas, Office of the Comptroller of the Currency, Bank One, Fannie Mae,
Guaranty Federal Bank, Nationsbank, Texas Commerce Bank, The Enterprise Foundation and Wells Fargo Bank.Contact: (202)
Apr. 24*Washington, DC: What's Hot in Housing Tax Credits. Sponsor: The Institute for Professional and Executive Development,
Inc. Contact: (202) 331-9230
Apr. 23-25 Atlanta, GA: Economic Development Administration Atlanta Regional Meeting. Sponsor: National Association of
Development Organizations Research Foundation. Contact: (404) 730-3002
April 26-30 San Francisco, CA: National Environmental Training Association Annual Conference and Workshops. Sponsor:
National Association of Development Organizations Research Foundation. Contact: (602) 956-6099

May 8-9 St. Louis, MO: NADO Research Foundation: Economic Development Finance Service. Sponsor: National Association of
Development Organizations Research Foundation. Contact: (202) 624-7806
May 12-13 Baltimore, MD: Business Retention and Expansion. Sponsor: The National Council for Urban Economic Development.
Contact: (202) 223-4735
May 15-16*Washington, DC: The Next Step for the LIHPRHA Inventory. Sponsor: The Institute for Professional and Executive
Development, Inc. Contact: (202) 331-9230
May 19-20 Arlington, VA: CRA Workshop. Sponsor: Consumer Bankers Association. Contact: (703) 276-1750
May 28-30 San Antonio, TX: Economic Development Administration Austin Regional Meeting. Sponsor: National Association of
Development Organizations Research Foundation. Contact: (512) 916-5595

June 1-4*Las Vegas, NV: Government Finance Officers Association. Sponsor: National Association of Development Organizations
Research Foundation. Contact: (312) 977-9700
June 6-8 Durham, NC: National Academy of Public Administration. Sponsor: National Association of Development Organizations
Research Foundation. Contact: (202) 347-3190
June 7-10 Charlotte, NC: National Association of Regional Councils. Sponsor: National Association of Development Organizations
Research Foundation. Contact: (202) 457-0710
June 8-11 Chicago, IL: ACB/ABA National Real Estate Lending Conference. Sponsor: American Bankers Association. Contact:
(800) 338-0626
June 16-17 Charlotte, NC: American Short Line Railroad Association: Shortline Rail and Economic Development. Sponsor:
National Association of Development Organizations Research Foundation. Contact: (202) 628-4500.

Community Development

Our masthead painting represents a break from our
traditional landscapes within the District to matters a little
closer to home. Featured in our masthead and inside the
headers are the faces of the types of people that benefit from
community development efforts.

Ron Zimmerman
Courtney Dufries
Marie Easley
Free subscription and additional copies are available upon request to Community Affairs, Federal Reserve
Bank of Atlanta, 1000 Peachtree Street N.E., Atlanta, Georgia 30309-4470, or call 404/498-7380; FAX
404/498-7342. The views expressed are not necessarily those of the Federal Reserve Bank of Atlanta or the
Federal Reserve System. Material may be reprinted or abstracted provided that Partners is credited and
provided with a copy of the publication.