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Unlocking Doors: FHLBs Partner with Local Banks to Expand Minority Homeownership (September 2003)

INDEPENDENT BANKER
SEPTEMBER 2003


Unlocking Doors
FHLBs partner with local banks to expand minority homeownership

by Cynthia Powell

Late last year, when a Native American couple sought a bank loan to help make the holidays more special for their children, they received a gift the family hadn’t even dared put on any wish list: a home of their own.

The couple not only was approved for a holiday bank loan, but also was given assistance with downpayment costs for a home purchase, which they hadn’t realized was within their grasp. “In reviewing this couple’s loan application, we realized that for what they were paying in rent each month, a mortgage was very doable,” says Duane Carlson, vice president at Community Development Bank in Ogema, Minn.

Through success stories like these, community banks across the country are helping achieve President George W. Bush’s goal of 5.5 million additional minority homeowners by the end of the decade. When he launched his Blueprint for the American Dream initiative in June 2002, President Bush said, “Homeownership lies at the heart of the American Dream.”

This April, the Council of Federal Home Loan Banks convened in Washington for a summit of housing experts from academic, public and private organizations. The mission: to help bridge the ever-remaining gap between homeownership levels of whites and minorities. (A Harvard University study showed today’s level remains consistent with findings 40 years ago.)

Based on the summit, the council in June unveiled a report, “Minority Homeownership: Unlocking Doors, A Report on the FHLBs’ Blueprint for the American Dream.” In the report, the housing gap was made clear via statistics from the Local Initiatives Support Corporation Center for Homeownership in New York: While nearly three in four white Americans (73.8 percent) own their own home, fewer than half of blacks (46.3 percent) and Hispanics (46.3 percent) do. Only 52 percent of Asians and others do.

According to the U.S. Census Bureau, minorities will account for 80 percent of the total population increase in the first decade of this century, the report says.

The report also commented on the following four areas outlined by the Department of Housing and Urban Development for which minorities may need assistance to secure the purchase of a home:

  • Downpayment assistance;
  • Homebuyer education;
  • The supply of affordable housing; and
  • Mortgage financing.

The FHLBs administer the largest private-sector grant program for housing in the nation. Ten percent of each FHLB’s net profits are dedicated annually to its affordable housing program, much of which benefits minorities. In 2002 alone, this program provided $286 million in funding for more than 48,500 affordable housing units across the country.

DOWNPAYMENT: Fronting Upfront Costs

A key theme echoed throughout the April FHLB conference on minority homeownership was the need for downpayment and closing cost assistance. Roy O. Priest, a panel participant and the president and CEO of the National Congress for Community Economic Development, said, “Flexibility is key to being able to work with community-based organizations that are providing the link between sources of funding and the households that need assistance in purchasing homes.” The financial institutions such as Community Development Bank that have established effective working relationships with local organizations are the most successful in increasing homeownership opportunities for minorities.

The Native American family described above was one of five in north central Minnesota to receive a $5,000 grant from the Community Development Bank through a FHLB of Des Moines affordable housing program targeting minorities.

Three of the five grant recipients were identified through the Minnesota Chippewa Tribe in Cass Lake, which is the governing body for a number of the state’s Native American reservations. The other two, like the Minnesota couple described earlier, came into the bank for another kind of loan and were offered the opportunity to apply for the grant, Carson explains.

“With interest rates what they are, we’re jammed with refinancings. You settle into a mechanical mode, and your day becomes routine,” he says. “But to do something creative like work in affordable housing and make dreams happen for kids, that throws a whole new slant on things.”

EDUCATION: Learning Opportunities

Lack of knowledge is one of the most significant and pervasive barriers to homeownership, according to the FHLB June report. Knowledge gaps include some or all of the following topics:

  • The value of homeownership in building wealth and financial security;
  • The logistics of a home purchase;
  • Basic budgeting and financial planning;
  • Building and maintaining a solid credit record; and
  • Costs involved in maintaining a home.

Banner Bank in Wenatchee, Wash., plays a valuable role in its community not only in helping minority families finance a home purchase, but also in educating them about the process, according to Brette Sangster, the bank’s real estate loan officer.

In assisting numerous families with purchasing a home in a Wanatchee 32-lot subdivision several years ago, Sangster says she typically would spend 20 to 30 minutes at a time in informal, one-on-one “seminars” with potential homebuyers, frequently with the aid of an interpreter. “It got challenging at some points,” she recalls, adding that a significant percentage of the borrowers were first-generation, non-English-speaking immigrants from Latin America or Russia. “But since we were not in a big group with a set agenda, we could go at our own pace.”

It was a learning experience for Sangster as well, as she realized how these borrowers’ cultural background might have instilled in them a reticence to even enter a bank or financial institution. And with Hispanics recently overtaking African-Americans as the largest U.S. minority (according to 2002 Census figures released in June), such cultural sensitivity among bankers is the key to creating a welcoming environment for all minorities.

“Through the education process, some of these families started checking or savings accounts with us as well-people who had never had any banking relationship at all,” Sangster says. “Now, three or four years later, I still see these folks here at the bank.”

In addition to homebuyer education and banker cross-cultural learning experiences, many community bankers are teaching each other how to better take advantage of available FHLB affordable housing funds. For example, after Carlson awarded all five downpayment grants to families in his area, he reached out to other banks in the region that hadn’t yet distributed their FHLB funds. In exchange for some additional grant money for families in his area, Carlson provided advice and assistance to the banks on how to identify, qualify and approve low- and very low-income families as grant recipients.

“Education is pivotal when dealing with residents of these reservation communities,” Carlson explains. “But sometimes we bankers need educating, too. We tend to get into a daily routine and not allow time to look into such opportunities to go above and beyond.”

SUPPLY: Creating Housing and Jobs

The FHLB report highlights one primary strategy for increasing the supply of affordable housing: innovative partnerships with nonprofits and other community organizations. Among possible projects for such partners are sub-prime lending, manufactured housing, home improvement, small multi-family development and construction lending.

The Chelan County Housing Authority, which spearheaded the Wanatchee, Wash., subdivision, requested the assistance of Banner Bank to help finance the development of a new project, scheduled for completion in early fall. The 16-lot subdivision is in a resort area called Lake Chelan, 40 miles from Wenatchee. With lots of orchards in that area, much of the land remains undeveloped. What little is for sale is priced at a premium, due to its proximity to the lake, Sangster says.

Judging from attendees at the information sessions Banner Bank and the housing authority have conducted so far, roughly three-quarters of potential applicants are Hispanic, Sangster says, adding that some may be farm workers for the nearby orchards or employees at the hotels and restaurants in town. “We are fortunate to be able to work with the Chelan County Housing Authority, which is involved and experienced in putting these projects together,” she says. “We know they’ve done their homework, and we feel the risk is minimal. It is such a great opportunity to be able to provide this kind of meaningful assistance and support to families.”

In Kentucky, Cumberland Valley National Bank has teamed up with an innovative nonprofit with a mission of stimulating economic growth and job opportunities in this rural area. With 16,000 homes across Appalachia that lack functioning plumbing, Kentucky Highlands, a 35-year-old nonprofit dedicated to stimulating growth and creating employment opportunities in a nine-county region of Southeastern Kentucky, recognized potential demand: the inexpensive, cost-efficient manufacturing of the “complicated part of the house,” areas with plumbing such as the kitchen, bath and laundry room.

According to Jerry Rickett, president and CEO of Kentucky Highlands, training workers to manufacture these “cores” in a factory not only would provide jobs, but also would enhance the affordability of plumbing for existing homes, as well as the construction of new homes. As a pilot, Kentucky Highlands last April approached Don Rogers, the bank’s president who has a record of activism in regional economic development, to partner in seeking a $50,000 grant from the FHLB of Cincinnati to fund construction of these “cores” for three to-be-built homes. One criterion was that at least one of the homes be for a minority family.

Now Rickett and Rogers are working together with the local chapter of Habitat for Humanity to offer one of these three “plumbing modules” for the construction of Habitat’s 1,000th home in that area. And it is likely that the family will be a minority.

FINANCING: Matched Savings Accounts

Numerous barriers exist for many minority would-be homeowners beyond just a downpayment. These issues can include everything from getting financial education to obtaining flexible financing options. Cleaning up nonbank predatory lenders can also be a big step in paving the way for minority homeownership.

Cumberland Valley National, in addition to its work with Kentucky Highlands, offers potential homebuyers assistance in consolidating their debt, getting counseling and obtaining a desirable interest rate considering the risk, according to Sandy Harris, a vice president in charge of secondary market mortgage lending at the century-old bank, which has $475 million in assets. The bank collaborates with the Daniel Boone Development Council to offer homeownership counseling. “I lucked into her,” says Harris of her contact at Daniel Boone Development Council. “When I received grant money from FHLB Cincinnati and needed to set up some homebuyer counseling, I ran across the Daniel Boone Development Council locating in a neighboring county. Together, we set up a debt consolidation and education program for low- income homebuyers.”

Through such a program, Harris says, low- and very low-income residents in her area learn to protect themselves from predatory lenders, to build a financial cushion and to save for a home of their own.

Cynthia Powell is a free-lance writer in Washington, D.C.






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