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Federal Reserve Bank of Atlanta
Volume 10, Number 1
Complex Issues Surround Building
and Maintaining Affordable Housing
It's never easy to decide w hilt meaningful a nd timely topics should be
included in a newsletter. Our communi ty development industry is so
fu ll of interesting news and events
that frankl y, it's almost overwhelming. And everything is moving so
fas t that it's hard to keep up.
Tius i sue is mind ful of your needs
for current events a11d background
infom1ation. For exa mple, Mike
Milner's article on the "mark-tomarket" program is a particularly
insig htful view on HUD-sponsored
Section 8 developments. Congress
pas ed the Multifa mil y Assisted
Housing Reform and Affordability
Act of 1997 to address the very large
amount of H D subsidies required
for multi fa mily housing. TI1e
change has resulted in some affordable multifamily properties "optingout" of the rental assistance progra m.
Meeting the need for affordable
housing is a constant challenge. It's
hard enough to develop the units,
and now w ith some low-income
housing tax credits expiring, combined with neighborhood gentrification, ma rk-to-market and other factors, the number of affordable units
is rapid ly declining. And there are
no q uick fixes, or easy answers.
Another article we' re featuring was
prepared by guest authors Kathy
TI1is Pa rtners fea tures both single
and multifamily affordable housing.
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Spring 2000
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
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www.frbatlanta.org
fo r more information on selected
topics, including a ca lendar of
events that nught interest you.
This Partners issue features some
news worth celebrating. Keenan
Conigla nd d escribes a new Fannie
Mae initiati ve that provides substantial support to Citizens Trust
Bank in Atla nta, a minori ty-ow ned
financial institution.
Fi nally, we a rc excited about a very
fine public/ private partnership
fo rmed in Lafayette, Louisiana, to
provid e affordab le single fami ly
housing in a new development
ca lled Bayberry Point. Every now
and then we uncover a program
that is nm by a variety of committed and determined professionals
whose intent is noble and whose
approach is sound . Lafayette is a
prime exa mple of this, and we a re
pleased to present it in this issue.
We hope you find it as interesting as
we d id.
'
While we normally try to balance
the newsletter with information
covering housing, business, and
community and economic development programs, sometimes there is
just too much news to cover in one
issue. We w ill certainly try to
address more issues in the next
newsletter. In the mea nti me, please
visit our website,
Kenny and John Trau th, w ho present one approach to preserv ing
afford able housing units. TI1cy
explain the issues and concepts that
led to the development of a new
na tional nonprofit. the ational
1 lousing Development Corporation.
This nonprofit is chartered to serve
as an intermed iary for local nonprofits w ho need assistan ce in buying and preserving our affordable
housing stock.
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In This Issue
Single Family Housing ..........................2
In Lafayette, the results shine.
Multi-Family Housing ............................ 4
Mark-to-Ma rket issues explored .
Affordable Housing Preservation ....7
A new non•profit' s efforts to preserve
afforable housing.
Capital lnveshnent in Minority
Bank.......................................................... 11
Fannie Mae and Citizens Trust Bank partner to
expand housing opportunities.
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2
New Homeowners in the Heart of French Louisiana
By Wayne Smith
In Lafayette, Louisiana, the key elements for successful affordable housing programs came together as a result of a shared
vision and a willingness to work together in a collaborative way At the same time, all parties never lost sight of the need for
decisions to also make solid business sense. When parties are willing to work together under this framework and reach agreement, the benefits in community development can be positive for everyone involved in the process. In Community Affairs, we
take great pleasure in our work from seeing families realize their homeownership dream. But what's nearly as satisfying is
seeing exceptional examples of cooperative efforts that help make those dreams come true. One such example is in Lafayette,
Louisiana. We are pleased to present this story below to capture some of the better elements of this public/private partnership.
Community Development is al l
about expanding th e opportunity
for homeownership to low- and
moderate-income individuals and
families. Of course , th e task is not
always easy when dealing with
mu ltiple parties. In Lafayette ,
Louisiana , a number of elements
had to come togeth er.
First, you had to have a
good developer who
could bui ld affordable
housing profitably. Next,
you had to have a willin g
financial institutio n to
offer an affordable mortgage product. Then,
you had to have a capable city government to
support the proposal
and facilitate gap fin ancing. And of course, you
had to have elig ibl e and
educated buyers along
with dedicated realtors
who would work to bring
th e parties together.
Li ke othe r financial institutions in
Lafayette, Whitney National Bank
is active ly involved in commu nity
lending. Pattie Charpentier,
Community Lending and Outreach
Specialist, worked aggressive ly to
promote mortgage products that
would serve the needs of
low- and moderateincome borrowers when
coupled with gap financin g provided through the
Lafayette Consolidated
Government.
Th e Whitney products
include FHA and VA
loans , and an in-house
market interest rate product with no origination
fees, no points , no mortgage ins urance , a 3%
downpayment, and debt
ratios of 33% for the
housing payment, and
42% for the total debt
In Lafayette, the results shi ne.
Developer Linda Supple worked to
design and build affordable housing that is as att ractive as it is well
built. The brick homes featured on
the cove r and in thi s article have
three bedrooms , two baths, custom kitchen cabinets, central heat
and ai r, patio, and quality finishes
throughout . They sell in th e
upper-$70,000 price range.
The pivotal factor for a developer
to be able to build such housing
Partners in Community
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Federal Reserve Bank of St. Louis
profitably is to keep costs down .
In this case, the developer
acquired th e Bayberry Point subdivision from a ban k that foreclosed
on the property and had carried it
as a non-earning asset in "other
re al estate." With the infrastructure already in place -- such as
paved streets, curbing , sewers,
and undergroun d utilities -- great
savings co uld be reali zed.
Of course, as most developers
know, there is more to it than the
bri cks and mortar. Working closely with the homebuye r is critical. "I
spend so much time with the client
to bu ild their con fidence and earn
their trust ," said Ms. Supple. "I'll
even help make the appointment
for them to meet the lend er. The
customer is always more co mfortable if they know the lender is
expecting to see them ."
and Econom ic Development
payme nt.
"This partnership works, " says Ms.
Charpentier, "because so many
people are not out for individual
fin anc ial gain . And with this developer, we kn ow the client comes
first ."
Th e Lafayette Consoli dated
Government has a substantial
commitment to the partnership as
well. Joseph Bourg ,
Govern mental and Business
Relations Manager, says "getting
people into hom es is a sou nd economic policy."
3
Community Development Practitioners - standing from left to right are Anthony Branham, Business
Development Officer, Lafayette Consolidated Government; Barbara Kinchen, Realtor, Belle Terre Properties;
Shawn Moore, Business Development Specialist, and Joe Bourg, Government and Business Relations Manager,
both with the Lafayette Consolidated Government; and Faye Nunn, Counselor with Neighborhood Services.
Seated is Sylvia Mouton, Broker, Belle Terre Properties; Linda Supple, Developer, Bayberry Point Subdivision;
and Pattie Charpentier, Community Lending and Outreach Specialist, Whitney National Bank.
The local government has a substantial number of housing programs and services to offer. Some
of the programs include rehabilitation grants, demolition grants,
home maintenance courses,
hom ebuyer education training programs, emergency shelter grants,
and soft second mortgages for first
time homebuyers to bridge the gap
for many homebuyers.
The Lafayette Consolidated
Government and the Lafayette Public
Trust Financing Authority provide the
gap financing for applicants whose
income does not exceed 115% of
the area median income. The program provides a 5% interest loan of
up to $5,000 tor downpayment or
closing costs assistance.
A 15-year loan, the second mortgage
will "buy down " the interest rate tor
the homebuyer. And while the
$39.54 monthly payment can be an
administrative burden as the volume
of loans gmw, the Consolidated
Government recognizes the benefit
of homeownership far outweigh the
administrative costs.
sculpting a program ," says Mr.
Bourg. "You try to improve upon it
every year."
Best of all , according to Ms.
Supple, "when the client comes to
closing , they know what to expect."
Other restrictions apply, and for good
reasons. For example, the first mortgage interest rate can not exceed
9%.
The development of affordable
housing generally and Bayberry
Point in particular have made a
tremendous difference in the
community. The development
created construction jobs and
stabilized the neighborhood .
As local Realtor Barbara Kinchen
with Belle Terre Properties explains,
"you should not provide false hope.
High interest rates and high debt levels are setting people up for ultimate
fai lure of losing a home."
In addition , applicants must meet
the credit standards of local
lenders. "Sometimes it's necessary
to focus on customer's credit repair
issues first ," said Ms. Kinchen .
And applicants must have completed a First Time Home Buyer training program within the last 12
month s. The training is critica l.
"We can definitely tel l the difference ," says local Realtor and sales
manager, Sylvia Mouton , of Belle
Terre Properties. The client knows
what they wa nt and they ask specific questions."
The lender receives profitable
returns on its loans, and in the
case of Whitney National Bank,
past-due rates are more favorable than many other mortgage
pool s.
The Lafayette Conso lidated
Government benefits from real
estate taxes and the indirect economic benefits from the additional jobs that have been created.
And most important, more families have places to ca ll home.
As with all new products, "it's like
For more information, please call
the housing department of the
Lafayette Consolidated
Government at (337) 291-8404,
or Wayne Smith at the Federal
Reserve Bank, (404) 589-7265.
Spring 2000
Federal Reserve B1111k of At/1111t11
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
4
Mark-to-Market Initiatives Impact
Affordable Housing
By Michael Milner
Are we on the verge of a mu ltifamily affordable housing crisis?
Over the last three years, a growing trend of priva te m ultifamily
rental property owners have
decided not to continue their relati onship with HUD and its
Section 8 program. Even w ith
new affordable housing being
built, this still tra nslates into a net
loss of affordable u nits ava ilable
to low-income renters. The shifting paradigm is largely attributed
to changes in the program.
In the 1970s, HUD institu ted a
progra m to encourage the building of additiona l affordable rental
housing by priva te owners. H UD
offered high renta l subsidies and
entered into 20-year con trac ts
wi th priva te owners. These
agreements allowed au toma tic
annual rent adjus tments. Twenty
years later, H UD was maki ng
ren tal subsidy payments to man y
of these property owners substantially above the level of ma rket
rents, creating quite a controversy
on Capitol H ill. Significant
Congressional debate ensued to
d etermine a long-term solution to
the problem of the high rents,
realizing that simply cutting rents
d own to market levels could
cause numerous fo reclosu res and
d efaults on FHA mortgages.
Finally in 1997, after much d ebate
and some experimentation,
Congress passed The Multifa mily
Assisted Housing Reform and
Affordability Act of 1997
(MAHRA). MAHRA was
designed to reduce the cost of federal housing assista nce, improve
HUD's admi nistra tion of such
assistance, and ensu re the continued afford ability of uni ts in certain multifa mil y housing develop ments.
Speci fic Ch anges
Mark-to-Market Program (M2M)
MAHRA authorized a new M2M
Program d esigned to preserve
low-income rental housing affordability w hile red ucing the longterm costs of federal ren ta l assistance, including project-based
assis tance from HUD. This w ill
be acco mplished th rou gh the fo llowing objectives:
♦
Red u cing p roject rents to no
more than com parable marke t
rents (with some exceptions),
♦ Restructuring the H UD-i nsured
or HUD-h_eld fina ncing so tha t the
monthly payments on the fi rst
mortgage ca n be pa id fro m the
reduced rental levels,
♦ Performing any need ed rehabilitation of the project,
♦ Making sure there is competen t
management of the project.
The type p roperties affected by
the Act are H UD-i nsured or
HUD-held mortgages and contracts fo r project-based ren tal
assistance from H UD, primaril y
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Federal Reserve Bank of St. Louis
th rough the Section 8 progra m,
fo r which the average rents fo r
assisted units exceed the rent of
com parable properties.
When a Section 8 contract renewa l
requ est is made, the owners of the
property ca n either renew the
contract without res tructuring the
mortgage d ebt, renew the contract
and restructure the mortgage, or
"opt out" of the Section 8 program. The first option can be
done with either below-marke t or
above-ma rket projects. Because
the contrac t restructuring process
may take sometime, con trac ts are
renewed at present rent levels
tem porarily while the mortgage is
being res tructu red.
Office of Mul tifamily Housing
Assistance Restructuring (OM HAR)
The Act also established OMH AR
w ithin HU D to develop and manage the p rogram. The p rogra m is
runni ng th rou gh a grou p of
d ecen tralized entities ca lled
Participating Administrative
Entities (PAEs) that are
appointed by OMH AR. PAEs are
mostly Hou sing Finance
Authorities, but there are nonprofi ts and in some cases, fo r
p rofi t organizations. These PAEs
negotiate with the owners of individual projects and d evelop
what's called "Restructuring
Plans."
Restructuring is being d one on
properties with expiring contrac ts
where the subsid y exceed s the
tru e ma rket va lue a nd the property ca nno t cash fl ow its cu rrent
d ebt service a nd ope ra ting
ex penses when the re nt is redu ced
to the ma rket level. Fo r those
with H D-insured loa ns, restructuring will usually redu ce the
am ount of the first mortgage to
levels servicea ble with cction 8
ma rket re nts, p lacing the no n-servi ceable portio n of the prior loan
into a deferred second mortga ge.
Where d ebt reduction fa ils to
yield sufficient savings to o pera te
at ma rke t rents, bud get-ba sed
Sectio n 8 rents, ca lled "exceptio na l
rents," ca n be used to cover operating ex penses.
/11 1pact of the Cha 11~cs
Na ti o nwid e, over 800,000 hou sing
units in a pproximately 8,500 multifamil y projects have been
fin a nced with FHA-insured mo rtgages a nd suppo rted by projectbased Section 8 housing assistance pay ment contra cts. In
respo nse to the HUD changes,
hundred s of property owners
decid ed to discontinu e their relatio ns hip with the H D prog ra ms.
Ma ny of the 20-ycar expiring contra ct holders were choosing to
"opt out" of the prog ram . To add
to this di lemma, a large number
of pro perty owners bega n paying
off their mo rtgages well in
adva nce of the maturity dates,
w hi ch also ga ve them a n opportunity to be released fro m their
Se~tio n 8 responsibilities.
Th rou gh the end of 1998, 929
p rope rties to taling 97,568 units
either "opted o ut" or pre pa id their
HUD loans.
It is reasonable to assume that the
properties exiting the program first
are those that had been receiving
rent subsidies less than comparable
rents in the market. Com munities
that have been affected the mo t
seem to be those with significant
popula tion growth and increasing
housing costs where the subsidies
are no t covering actual costs to the
property owners.
Spring 2000
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Federal Reserve Bank of St. Louis
"Opt out" and prepayment data
give a be tter idea of the seve rity
of the problem. As reflected o n
page 9, the Fed eral Reserve's
Sixth Dis trict sta tes lost 30 properti es totaling 4,030 un its becau se of
"Opt outs." Prepayment data,
ho wever, reveal a more sig nifica nt
concern .
With prepay me nts, the hig h
g rowth states of Florida a nd
Georgia were hi t the hard est, losing 4,370 units. The low g rowth
sta tes of Ala ba ma and Mississippi
were affected the least. According
to Eric Strong, Jefferson County
Housing Authority CEO (the
I-IUD-appointed PAE for
Alaba ma), "many Alabama rental
markets d o n' t offer the necessary
incentives for an o wner to "opt
out" of the Sectio n 8 progra m."
Ad diti onal Section 8 program
properties will be lost th ro ug h a
d isqualifica ti on process.
Accordin g to H UD, more than
80'/c of H D prog ram p ro pe rties
arc in good conditio n; how ever,
some need substa ntial rehabilitati on. The prope rty ma y be di squalified from the benefits of the
M2M program when the property
is in poor co nditi on or w hen the
property owner has committed
subs tantive program violati ons.
H UD or the PA Es ma y find the
rehab costs too ex pensive.
However, HUD and the PA E have
a lot of d iscreti on on disqualifications a nd d o n' t a nticipate the
number of disqu alifica tio ns to
ha ve a s ig ni ficant impa ct on the
ava ilable units.
How mu ch uf a prob lem is the
M2M program ac tuall y ca using,
now tha t ma ny Sectio n 8 reci pients have vo u~hers and certifi ca tes allo wing the m to go to the
place of their choice? Ma ny
experts a nti cipa te the bul k of the
re maining Sectio n 8 housing will
re main in service and will compl y
with the new rules becau se man y
of these property owners have no
o ther choice. According to Eric
Strong, "one o f the primary goals
of the PAE's work is to ma ke
eve ry effort to preserve existing
a fford able housing units while
stri ving to reduce the fin a ncial
burd e n to the Treasury."
Ho weve r, the issues a re still signi fi ca nt, particularl y for urba n
dwelle rs in hig h-gro w th a reas.
The loss of 9 ,000 units of Sectio n
8 ho us ing as of 1998 has put a s ignifica nt burd en on the existing
conventi onal rental ho using stock
in this country. Also, additio nal
finan cial pressures have been
placed on the low-income housing com munity, with voucher
recipients complaining of ha ving
to pay premium a mounts above
their vo ucher alloca ti o ns to li ve in
d ecent housing .
Hous ing Secretary Report
Ho us ing Secreta ry And rew
Cu omo reported to Congress in
March 2000 that a record number
of low-income famili es need
rental assista nce but fail to get it.
According to a recent H UD stud y,
a t least 5.4 millio n ve ry-lo wincome household s spend over
ha lf their earn ings on rent without assistance or li ved in substand a rd conditions as of 1997, the
most recent data a vailable. The
higher number also re presented
an increase in percentage of total
U.S. hou seho ld s compared with
1991: 5.4 % versus5. l o/c .
These lo w-income ho usehold s
ma ke up o ne s ixth of to ta l rente rs
and include 12.3 millio n indi vidu als co nsid ered as poor to be one
pa yc heck a way from homelessness. This is d espite the fac t tha t
the ho usehold s a re mo re likely
than ever to includ e a t leas t o ne
full -time worker. Seventy pe rcent
of all hou sehold s tha t receive fed eral housing assistance have
incomes below 30o/c of a rea media n income. The rent burd en g rew
three times faster for w orking
fami lies tha n for an y other category, HUD fo und . Mino riti es were
Federal Reserve Bank of Atln11tn
6
a nother hard-hit g roup. Increases
were especially steep fo r Hispanic
ho usehold s a nd fo r mino rity fa mi lies w ith young children.
Besides the factor of the net loss of
affordable housing wlits discussed
above, another factor was the lack
of federa l spending to increase the
number of Section 8 vouchers.
Cong ress crea ted no net increase in
Section 8 vouchers between fi sca l
yea rs 1995 and 1998. Cuomo
said , "There was a four-year hiatus
when we went out of the housing
business. We're now paying fo r that
hiatus."
Conclu s ion
In the 1970s, HUD brou g ht in priva te ownership to increase the multifanlily housing stock for the lowincome commwlity. Maki ng the
business of governmentally subsidi zed rental housing profitable for
private owners was the key to the
success of the program. In order to
continue the availabili ty of affordable private rental housing, HUD
must continue to make it profitable
fo r the property owners involved.
In 1999, there was a noticeable
decline in property "opt outs" and
prepayments. It is believed that the
initial "opt outs·· and pre-payments
in 1998 were the ones most convertible to above-market rents. But
many predict tha t there will be a second wave of "opt ou ts" in 2000 after
the end of severa l automa tic oneyear extensions that were initiated at
their existing rent levels. Many are
predicting that a number of these
wlits will be up for sa le in 2000 and
2001 ];)ecause they no longer will be
profitable for existing private ownership.
for acquisition opportunities, and
the increased involvement of
non-profit housing orga ni za tions
wi ll be a welcomed addi tio n to
the ownership of Section 8 rental
properties. Additional hope
exists in the possible expansion of
the government's Section 8
voucher progra m. In order to
address affordable housing problems appropriately, a long-term,
detailed regional strategy w ill
have to take into consid eration
the ex isting housing stock and
the need fo r bui ld ing new housing. This wi ll requ ire the
involvemen t of govern ment, fo rprofit, and non-profit concerns.
A number of non-profits a re
attempting to prepare themselves
While the health riskB of tobacco products are wen estabUshed, and llnuta~ are clearly ~ the bnplica~ overlooked. Right or wrong,
tions for low-income rural counti in tob8cco-produdng l,'egions
these very low-income counti in our Districts have relied on this govemment,-supported indWd:ry for a long
time, and change will not come easy for them.
The report dtes many interesting statistics. For example, in 1998 alone, U.S. consumers spent $59 billion on
tobacco products, generating income and employment in the wholesale and retail sectors, manufacturing, storage, sales and distribution, and tobacco farming. Another example of the report's statistical data is the number
of US. jobs that are directly related to tobacco production - o er 500,000. Clearly, these jobs amount to significant economic impact to not only the workers themselves, but also the economy that feeds off of these jobs.
The report explains the government's tobacco program, the tobacco settlement, and the trust fund to assist
growers in offseting their potential I in revenues. It also discusses the role of tobacco in local ea>no.Qlies, the
impacts of change, the potential economic effects if tobacco production decreases, strategies for ddreesing
cbange, and suggested alternatives to tobaa.-o farming.
tl181"8'1. If you would like w
/IOl,aca,d.PDP or
Partners in Community nnd Econom ic Development
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Federal Reserve Bank of St. Louis
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National Housing Development
Corporation
A New Non-Profit Focused on Preserving
Affordable Housing
By Kathy Kenny and John Trauth
In spite of the robust American
economy, the need for affordable
housing continues to grow.
Today, this nation provides
affordable housing for only onefourt h of those w ho need it. As a
cou ntry, we are not build ing
enough affordable housing to
keep up w ith huge demand.
Many experts have recognized
this problem, including the
National Housing Conference,
which is calling for the creation of
a bold new affordable housing
production program. At the
same time, the stock of existing
affordable rental housing is
diminishing through neglect,
deterioration and, most importantly, the pending expiration of
federa l subsidies.
Beginning in the 1970s, the federal government entered into contracts with private owners to create affordable housing projects in
return fo r a long term (25-30 yea r)
commitment from the government to provide monthly rent
subsidies for the tenants. The
"Section 8" program, administered by the Department of
Housing and Urban
Development is the pri mary vehicle fo r these subsidy do!Jars. The
US Depa rtment of Agriculture's
"Section 515" program has also
bui lt afford able rental housing in
niral areas. While these subsidies
are not expiring, some owners are
in terested in selhng their properties to loca l nonprofits.
Now, throughout the nation, a
large percentage of these government rent subsid y contracts are
expiring without the expectation
of renewal. Over the next three
yea rs, the largest transfer of
affordable real estate assets in his'""'"""<,
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Spring 2000
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
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has approved a seed grant for the
first two yea rs of operation.
tory w ill take place, exposing
upwards of 800,000 affordable
apartments, now regulated and
subsidized by HUD, to marketrate conversion. Unless a largescale intervention takes place,
these precious resources will be
lost, as owners d ivest and profitmotivated investo rs move in.
NHDC's United National
Preservation Trust
N HDC's program, also called the
United Na tional Preservation
Tnist, will negotia te directl y wi th
portfolio owners for properties
anyw here in the cou ntry. It is
designed as a large-sca le acqu isition/warehouse facility which will
pu rchase larger portfolios of "a t
risk" affordable housing properties,
concentra ting on those which are
beyond the reach of local non-profits, either for fin ancia l or geographic reasons. NH DC w ill then reposition and stabilize the properties
and finall y disaggregage and sell
off individual properties at cost to
qualified local non-profit organi zations.
The Na tional Housing
Development Corporation
(NHDC) has been created to
respond to this need. It is the first
national intermediary of this type
to emerge from the West Coast,
growing out of an award-winning housing preserva tion program opera ted by the non-profi t
Southern Ca li fornia Housing
Development Corporation (SoCal
Housing).
N HDC's mission is to improve
the quality of life for lower
income fa milies through acquisition and preservation of our
nation's afford able housing stock.
It wi!J parh1er with other not-for
profit preserva tion efforts. It will
compete aggressively with the
private sector to purchase large
portfolios of these properties,
restructure them financially, and
sell them at cost to local non-profits. Under nonprofit ownership,
affordability ca n be maintained in
perpetuity. N HDC's goal is to
help preserve a significant portion of the nation's "at risk" properties, with a n initial target of
acquiring 60,000 units in three
yea rs.
N HDC's holding period (estimated
between 12 to 36 mon ths) will
enable the local non-profits to
assemble the necessary resources
(tax credits, HOME fu nds, and
loca l subsidies) to purchase the
properties and prepare to assume
property ma nagement fun ctions.
N HDC will retain a limited asset
ma nagement oversight role, retaining the ability to correct any future
problems that might arise.
N HDC has developed its program
based on the concept of "harmonious differentiation" through
w hich NHDC will work wi th and
complement housing, community
development and preservation
efforts of other national intermediaries. Initial relationships are being
negotiated with the Na tional
Counci l of La Raza and the
Congress of Na tional Black
Churches. In addi tion, properties
Congress has recognized the need
and endorsed the NHDC model.
Two rnillion dollars has been earmarked in the 1999-2000 budget
for NH DC's initial seed capita l.
In addition, a national foundation
~
.
...
~
,
Federal Reserve Bank of Atlanta
7
8
acquired by HOC will be c1va ilc1ble for purchase by qualified affiliates of the I eighborhood
Reinn'!-.tment Corporation, Loca l
Initiatives upport Corpo ration, the
Enterprise Foundation, ational
Association of Housing
Parh1erships, ational Affordable
Housing Preservation Associates
and others. (See page 10 for further
information on complementary initiatives opera ted by these organizations.)
will also work closely with
II
the Nationa l ouncil of State
Housing gencies ( C HA) and
its members at the state level, who
w ill assist in identify ing potential
at-risk properties and ma y also provide property financing.
HD 's Target Markets
ow that the initial seed cc1pitc1l is
in place, HOC staff is actively
working to identify and purchase
its first at-risk portfolios. Timing is
of the essence ince the majority of
the at-risk Section projects will
face subsidy expiration in the next
three years. If these properties arc
lost to conventional buyers and
converted to market rate housing,
the cost of replacing this inventory
will be prohibitive.
1
Opportunities exist for banks and
other financial institutions to provide seed capital to support
I IOC's initial activities in thei r
market a reas, as well as acquisition
and permanent fi nancing for
I IOC properties, eventually
assumable by the ultimate
owner/ man~ger, the loca l nonprofits.
In addition to the large number of
e,isting low-income rental housi ng
units which are inu11ediately "a t
risk" of loss as a result of market
rate conversion, other preservation
targets for HOC will include
older assisted subsidy-dependen t
propertiL'», conventional affordable
apa rtments owned by REITS, LowIncome I lousing Tax Credit properties reaching lock-in expiration, and
very large- · ale neighbo rhood rcvitali7ation projects that are beyond
the reach of loca l non-profit ca paci-
nee up and rwming, NHOC will
cam income from transaction fees,
special preservation funds
(Intermediary Technical sistc1nce
Grants), cash flows from acquir 'Cl
properties, transfer fees to loca l
non-profits (based on a limited
ost-reimbursement fom1ulc1) a nd
asset management fees. 1IOC's
projections indica te that it will
a hieve self-sufficiency in four
yea rs, based on an aggressive
acquisition strategy.
ty.
To reach elf-sufficiency, 1IIX's
financial projections show a need
for $5 million in seed capital (of
which $2 million has now been
is
provided by Congress). I I
in the process of raising the remaining seed ca pital from financial institutions, fo undations, corporations
and future congressional appropriations.
NHDC's Acquisition and
Financing Plan
N I IOC will focus on properties
which can be underwritten, purchased and preserved under a
"renewed affordability" paradigm
in which a combina tion of a reasonable c1cqui ition price and value
added through financial and operational restructuring, below-market
financing, tc1 credits, local sub idics and non-profit ownership ca n
achieve permanent affordability
independent of future federal ·ubsidiL'!-..
A CRA Investment Opportun ity
I IOC i developing an inves tment fund whercb ' participati ng
financial institutions should receive
RA investment credit via acq uisition (and subsequent disposition)
of e~sting affordable housing c1t
risk of market conversion.
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Acquisitions will be structured via
a ri k-shared equity pool LL in
which 11 IOC will be the managing
member and participating financial
institutions will be the equity
investors and members.
lnvesh11cnts arc targeted for $5 million increments, although smaller
investments will be considered .
The investment will have a projected hold ing period of 3 years and a
ma ximum of 6 vea rs, with a projected return ti5- <f , plus return of
capital. The fund will make every
effort to target it::-. acquisitions to
match the investors' s ' rvice areas,
broadly defi ned as states and
regions w here investors do business. However for HOC to have
the flc,ibilitv to respond to area of
greatest need, 25', of the funds will
be reserved for use in any location.
As Stxm a · propcrtiL'!-. arc repo itioned, stabili/ed, and the qualified
local nonprofit is in place, HOC
will sell or transfer the property to
the qualified loca l nonprofit. At
that time, the investors· equity capital will be repaid. As an alternative,
and at each individual investor'
discretion, equity capital returned
ca n be recycled back as a new capital contribution to acquire future
properties on the sa me basi . If
there is no otherwise viable affordabili ty-oricnted transa tion, as a
last resort the property can be sold
at ma rket value.
HOC Personnel
While I IOC i::-. c1 new na tional
intern1ediary, I IOC staff has a
long and im pressive history in
affordable housing preservation.
Jeff Burum, HOC's c, ecutive
director, was the founder a nd driving fo rce behind )uthern
California Housing Development
Corporation (SoCa l I lousing), a
large and successful regiona l nonprofit which focuses on preservation of affordable rental housing in
Southern California. nder
Burum's seven-_ca r stewardship,
SoCa l Hou sing preserved over
3000 units of affordable housing
with an asset value exceed ing $130
million. Other key staff members
from SoCa l Housing are also
involved with NHOC. Sebastian
Sterpa, former chairman of the
California Housing Finance
Agency, will serve as the initial
chairman of the Board of Directors.
Other members of NHOC's Board
are being recruited and include
key nationa l leaders in the nonprofit, philanthropic, private and
public sectors.
In ad dition, NHOC has assembled
a tea m of outside experts to assist
with acquisitions, organiza tional
planning and development, and
public finance. Team members
include Rick Johnston, Managing
Director, of Public Finance for US
Bank / Piper Jaffray, the authors of
this article, and David Smith,
founder and Presid ent of
Recapitalization Advisors, one of the
nation's leading specialists in the
HUD inventory.
The ultimate goal of NHOC's efforts
is to help local communities attain
grea ter control over one of their most
precious assets- the housing stock
that shelters lower income families
and seniors. Withou t a doubt, preserving this housing stock is a huge
undertaking, one that, in order to be
successful, w ill requ ire coord ination,
cooperation, considerable expertise
and strong financial support.
Management fees can also contribute
to the sustainability of local nonprofit operations, providing additional capital to address other community needs.
ng OUt of The
Alabama
Florlda
Georgia
Loulalana
MlaalNlppl
Tenneaaae
TOTAL
Aggregate USA
Tivough its working relationships
with other preservation-oriented
agencies and through its Board of
Directors, NHOC is positioned to
make a major difference in the
preservation of our nation's affordable housing stock. NHOC's success will directly transla te into success for the loca l non-profits who
wish to play a role in the preservation of affordable housing in their
communities.
For ndditionnl i11fonnnlion 011 NHOC,
con/net Nntionnl Housing
Develop111cnt Corpomlion , 8265 Aspen
Street, Rnncho Ct 1cn111011gn , CA 91730;
(909) 291-1400 or jb11n11n@nhdc.org.
Or visit NHOC's website nt
w1vw.11l1dc.org.
NUMBER OF
,'Ogl'MI
NUMBER
PROPERTIES
OF UNITS
3
7
4
5
4
1,282
387
878
7
655
30
4,030
37,898
349
490
360
Properties Prepaying Out of The Section 8 Program
STATE
Alabama
NUMBER OF
NUMBER
PROPERTIES
OF UNITS
Georgia
Loulalana
Mlaelaalppl
Tenneaeee
0
21
17
7
1
4
0
2,565
1,805
586
100
478
TOTAL
Aggregate USA
50
580
5,514
59,870
Florida
Information aupplled by the National Houalng nu.t, N of 12-31-98.
Spring 2000
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Federa l Reserve Bank of Atlanta
IO
dditional Affordable Housing
reservation Contacts
USC's Community Development Trust, Inc.
The Community Development Trust (CDT) is a for-profit real estate investment trust (REffi created in 1998 by the Local lnitiatives Support
Corporation (USC), a national conununity development intermediary. CDT acquires Jong-term fixed-rate mortgages collateralized by affordable
multifamily housing and other commW1ity development assets. CDT also invests equity in community development projects that meet CRA
requirements. As a REIT, CDT can offer current owners of affordable housing a tax-deferred exchange that benefits property owners who have
exhausted their tax benefits. Initial capital of $31,750,000 was raised from 18 institutional investors including banks, insurance companies, and one
CDFI. For further information, contact Judd S. Levy, President and CEO, (212) 271-5099, jlevy@commdevtrust.com.
National Affordable Housing Preservation Associates
The National Affordable Housing Preservation Associates (NAHPA) is a national non-profit organized to promote the preservation of affordable
multifamily housing in rural areas and small towns. NAHPA is currently completing acquisitions in lllinois and Vermont witll a goal of acquiring
3000 units over the next three years. USDA Rural Housing Service has affirmed a financing model for preservation properties to attract the participation of private lenders. NAH.PA is now looking to build an organization and to establish partnerships with local and regional non-profit organizations and housing authorities interested in acquiring and/or managing multifamily properties in rural areas. For further information contact
Muriel Watkins, Executive Director, (202) 467-85-14 or murielwatkins@hotmail.com.
National Association of Housing Partnerships' Housing Partnership Development Fund
The National Association of Housing Partnerships ( AHP) is comprised of 60 regional nonprofit housing organizations in 32 states. AHP's new
affiliate, the nonprofit Housing Partnership Development FW1d, will provide a loan facility for use by NA.HP members, primarily for purchase of
portfolios of HUD-assisted properties. The Fund will offer technical assistance with the financing that is needed for predevelopment costs. The
Fund has received CDFI designation, so that bank investors can receive CRA credit and cash awards. $1 million in investment has been raised to
date toward a goal of $3 million. For further i.nfom1ation contact Kathy Farrell, (617) 720--1999 extension 204, farrell@nallp.net.
Neighborhood Capital Corporation (NCC)
The eighborhood Capital Corporation (NCC) was formed in January, 2000 by members of the Multi-Family Housing Initiative of Neighborhood
Reinvestment Corporation (NRC). The NCC membership, comprised of the multifamily organizations in the NeighborWorks etwork, o,vns and
operates 15,000 wuts of multifamily housing. NCC's primary fW1ction will be aggregating capital for the timely acquisition of affordable multifamily housing for its member organizations. NCC members plan to increase their combined portfolio by 10,000 units by the end of 2003. NCC intends
to work with other organizations, including National Housing Development Corporation (NHDC), National Housing Trust/ Enterprise
Preservation Corporation (Nl-IT /E) and National Association of Housing Partnerslups (NAHP). The NCC board has commenced the executive
searcll process. For further information, contact Bill SuJlivan, Rocky Mountain Mutual Housing Association, Inc. 1550 Park Avenue, Denver, CO
80218, (303) 863-8651, ext.211;sullivanb@rnunha.com.
NHT Enterprise Preservation Corporation
National Housing Trust is a nonprofit intermediary located in Washington D.C. Tile Trust was founded in 1986 and is dedicated to the preservation
of existing multifamily affordable housing. In 1999, the Trust and the Enterprise Foundation lawlclled the NHf Enterprise Preservation
Corporation, wlucll will purcllase real estate from owners of multifamily housing, primarily targeting markets where there is insufficient local nonprofit capacity or interest to efficiently complete a transaction. This new nonprofit entity plans to acquire 5,000 apartments over the next five years.
1n general, NHT /Enterprise plans to focus its activities in the Mid Atlantic, Soutl1 and Midwest. For further information contact Scott Kline, Vice
President for Acquisitions, (202) 333--8931 or skline@nhtinc.org. Or visit NHT's website at www.nhtinc.org
About the Authors
Kathy Kenny and John Trauth are organizational planning and development consultants, specializing in the startup of large-scale initiatives in
affordable housing and community development. They are currently assisting the National Housing Development Corporation tllrough its startup
phase. John Trauth was also instrumental in the creation of BRIDGE Housing Corporation and Southern California Housing Development
Corporation, two regional nonprofit housing developers. Kathy Kenny has also served as a planning consultant to the Cowlcil on Foundations, the
League of California Community Foundations, tile National Economic Development and Law Center, and the Federal Reserve Bank of San
Francisco.
Partners in Com munity
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
nnd Eco1101nic Development
I I
Fannie Mae and Citizens Trust Bank
Join Forces to Expand Housing
Opportunities
By Keenan Conigland
For most banks, construction of
affordable housing in low- to moderate-income communjties is a
noble but challenging endeavor.
Prospects for success increase dramatically, however, when you are
able to join forces with the likes of
the Federal National Mortgage
Association - known more commonl y as "Fa nnie Mae." In an effort
to increase lending opportunities in
traditionally und er-served communities, Fann ie Mae, the largest
source of financing for home mortgages in the country, recently made
a $1.5 million equity investment
into Citizens Bancshares
Corporation, the parent company
of Citizens Trust Bank, Atla nta,
Georgia (CTB).
With assets of $215 million at yearend 1999, CTB is the largest
African-American controlled bank
in the southeast and the fourth
largest in the U.S. The bank was
founded in 1921 by a group of
black businessmen led by Herman
E. Perry, who had made his fortune
in the insurance business.
Fannie Mae's $1.5 mil lion stock
in vestment gave the agency a 9.9%
ownership interest in return - an
amount below the lOo/c threshold
under the Change in Bank Control
Act. The equ ity funds, which now
represent Fannie Mae's largest
Commu nity Development
Financial Institution (CDFI) investment in the sou theast, will be used
to promote grea ter development in
the metropolitan Atlanta area
served by CTB.
Chuck Lewis, chief operating officer and senior execu ti ve vice president of CTB, explains the bank's
strategy. "Our vision is to make
Spring 2000
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Federal Reserve Bank of St. Louis
loans and then invest back into the
community so that it will flourish.
We can also be an advoca te for
these communities and businesses
by becoming part of their neighborhood associations, and giving
our time and talent." Lewis works
closely with the South Dekalb
Business Associa tion, Old Nationa l
Hig hwa y Merchants Association,
and Cascade Business Association.
In the sa me spirit of corporate citizenship, James E. Young, president
and CEO of Citizens Bancshares
Corporation and CTB, is active
with the Atlanta / Dekalb Chamber,
Sweet Auburn, and a host of other
organizations.
Because of that kind of community
vision and involvement, Fannie
Mae felt comfortable in making its
second CDFI invesh11cnt in the
institution in as little as three years.
'They penetrate under-served communities much better than traditional banks," explains Archie Hill,
director of Fannje Mac's Atlanta
Parh1ership Office. "They have a
targeted outreach that works."
In an effort to serve markets where
resid ents have demonstrated
income but lack conven ient access
to financia l services, CTB has
opened branches in the College
,~a rk, South Dekalb, and Cascade
areas. "These are viable areas but
they need access to capita l. We
know how to make loans safely
and profitably in these communities. We're trained to do it," says
Lewis.
James E. Young, Citizens Trust Bank President
munity, we can generate wea lth
and business opportunities," Lewis
says. "We now give free finan cial
plans and makeovers. As an
approved SBA lender, we ca n do
anything a full service bank can do,
including internet banking."
Minorities constitu te 99'/c of CTB's
market. Of this segment, 6-io/c are
first-time homebuycrs, and 289c arc
single women heads of households. "We invest time in getting
to know our customers, " offers
Paul Ramirez, who heads up CTB
Mortgage Services (CTBMS).
"With us, trust, believability, and
face-to-face contact are what make
the difference."
Citizens Bancshares Corpora tion
merged with First Southern
Bancshares in ·1998. Based in metro
Atlanta's south Dekalb county,
First Southern was also a n AfricanAmerica n financial institution
founded by successful entrepreneurs. The assets of the Atlantabased institution recently increased
from $215 to $245 million when it
acquired the assets of Atlantabased, 75-yea r-old Mutual Federal
Savings and Loan, following
receivership.
CTB's overall strategy is fairly
straightfon-vard: it simply aspires
to "grow" the community. "By
plan ting financial seeds in the com-
Federn l Reserve Bn11k of Atln11tn
-This year's National Community Development Lending School (NCDLS) will be held at Washington
University in St. Louis, Missouri, from July 16 - 20, 2000.
The NCDLS focuses on how to attract and underwrite community development business that is consistently profitable. The five-day curriculum is based on the key issues and current industry trends relevant
to community development lending in today's business environment. The five core areas of study include:
Single-family housing, Multi-fam ily housing, Small business development, Commercial real estate, and
Community facilities lending ..
Trai ning stresses the day-to-day mechanics of underwriting community development loans and ensuring
their long-term profitability.
Attendees will be limited to the first 60 community development lenders who possess a minimum of one
year and a maximum of five years of community development experience.
V IC:E P l { l: S ll ) E N T
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rcq t ll':-.( lU COllll l ll/1111\
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An advisory committee comprised of experts in their field has been developed to create the curriculum for
this innovative school and serve as its faculty. These experts include: Mr. Tomas Fitzgibbon, president and
CEO of Manufacturers Community Development Corporation in Chicago; Ms. Karen Kollian, mid-Atlantic
district director of Neighborhood Reinvestment Corporation in Baltimore Mr. Jett Nugent, senior vice president at the Development Training Institute in Baltimore; Mr. Preston Pinkett, senior vice president at PNC
Bank in East Brunswick, New Jersey; Ms. Phyllis Rosenblum, senior vice president at HSBC Bank USA in
New York; and Mr. Doug Woodrutt, senior vice president, Bank of America in Charlotte .
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l{(':-,. t ·n ·t· s y .... h ' tll . 1\l i H<.: ri ;ll tllll Y l)c rc p nrucd
()I" <li)Slr, H'l< '<i fJr< J\ ·1,k·(l lll<ll /'11/"1/HT....; l~ l Tt'< i•
itn ! l Hld pro, ·idcd \\' i t!l ; 1 c opy o l Ilic p ul>ltCd ll ( l! l.
For further information , please contact Fred Mendez at the Federal Reserve Bank of San Francisco at
415/974-2722.
Community and Economic Development Conference 2000:
Seizing Opportunities in a Changing Financial Landscape
The Westin Michigan Avenue
Chicago, Illinois, October 30 · November 1, 2000
Sponsored by the American Bankers Association and the Federal Reserve Banks of Chicago and
St. Louis, the conference will explore community and economic development with an emphasis on seizing
financial opportun ities and growing institutions and organ izations.
Printed
on
recycled paper
For further information, please contact Barbara Sims-Shoulders at (3 12) 322-8232 or
Barbara.E.Shou lders@chi .frb.org.
For other events that may be of interest to you , visit www.frbchi.org/cedrjc/cedrjc.html.
The Federal Reserve System has a new national Community Affairs website.
Please vist our national site at www.federalreserve.gov/communityaffairs/national.
Co mmun it y Affa irs
Fed e ra l Heserve B ank o f A tl ant a
I 0 4 Ma ri e tt a Stree t. NW
At la nt a . Geo rg ia 3 0 3 03-271 3
Partners in Community and Economic Development
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Federal Reserve Bank of St. Louis
•
.
I
.
@FedFRASER