Community partnerships create affordable homeownership opportunities
by Cynthia Powell
To some, a vacant lot such as the site of an old abandoned hospital in a deteriorating section of Live Oak, Fla., is nothing but an eyesore. But to Keith Leibfried, chairman of First Federal Savings Bank, the two-block area was an affordable housing opportunity.
Leibfried envisioned homes for dozens of low- to moderate-income families. He pictured trees, children playing and grown-ups chatting with neighbors on front porches-their own porches. Through a partnership with a local nonprofit developer, and funding from the Federal Home Loan Bank of Atlanta and other sources, this community banker is realizing his vision.
“We designed houses that were functional and practical, with plenty of storage for lawn mowers and kids’ toys,” Leibfried says. “Each house’s design has a touch of character. The road curves through the development, bubbling around a small park with trees and a pavilion.”
Today, nine of the 11 houses built so far are occupied by qualifying families. And Leibfried is planning to donate three undeveloped lots to a local agency that runs federally funded Early Head Start school-readiness programs for children from low-income families. The feature should further enhance the project’s attractiveness for parents.
Like Leibfried, many other ICBA members across the country have forged innovative partnerships with community organizations to support and enhance local homeownership opportunities through the FHLB system’s Affordable Housing Program. And they’re making a real difference.
Each of the 12 FHLB Districts across the country annually contributes 10 percent of its income or $100 million, whichever is greater, to the AHP to subsidize long-term financing for very low-, low- and moderate-income families. Since 1989, AHP has provided over $1.8 billion in grants, according to the Council of Federal Home Loan Banks in Washington, D.C. Community banks and other FHLB member institutions, in turn, leveraged these funds to attract more than $24.8 billion in additional funding for housing during that same period.
While extremely competitive-on average, fewer than half of applicants are awarded a grant per funding round-the AHP partnership program offers community banks a unique way to structure a loan at a slight discount-or to provide outright grants for the construction or purchase of a home for buyers at or below 80 percent of area median income.
Leibfried’s project, the nonprofit developer, Three Rivers Housing Foundation and First Federal Savings Bank, a medium-sized institution serving 30,000 people in a primarily rural area in and around Live Oak, together sought funding from the FHLB of Atlanta, and then from the county’s Swannee River Economics Council. Combined, these two funding sources offer eligible buyers up to $15,000 to help with the downpayment.
This partnership has leveraged FHLB loans and grants over the years to obtain additional affordable housing funding from local, county, state and federal groups such as the Board of Columbia County Commissioners, the Florida Housing Finance Corp., the U.S. Department of Agriculture Rural Development, as well as the local affordable housing advisory council.
“I admire First Federal Savings Bank for its willingness to be extremely creative and to consider innovative approaches to solving difficult community housing issues,” says Forrest Boone, Three Rivers’ founder and chairman. “The bank recognizes that housing spurs community development. A community bank such as Leibfried’s can play a key role in marshalling multiple resources in the affordable housing arena.”
Most FHLBs have two rounds of AHP funding a year, typically in the spring and fall. Based on the national requirements of the regulatory governing body, the Federal Housing Finance Board, each FHLB uses its own scoring guidelines and criteria tailored to the identified needs for its particular multi-state region. This includes projects where at least 20 percent of the units will be for very low-income households; projects that provide permanent housing for the homeless; and projects in rural areas where the population is less than 25,000.
“The hallmark of the FHLB system is that the individual FHLBs and their members make decisions that are in the best interests of their region,” says Malin Jennings, vice president of public affairs at the Council of FHLBs. “They develop regional solutions to solve regional problems.”Jennings encourages local community banks to contact their regional FHLB and learn about specific AHP formats and funding criteria.
In some cases, AHP funds help make homeownership possible for people one wouldn’t think of as needing affordable housing. For example, many teachers make less than 80 percent of their area’s median income, and thus cannot afford to live in the communities where they work. Such is the case in Lovell, Wyo.
The First National Bank and Trust, a Wyoming community bank serving the rural area of Cody, Powell and Lovell communities, and the Wyoming Housing Opportunities Association received a $140,000 FHLB of Seattle AHP grant to lower the cost of building a subdivision of 20 homes. Dave Reetz, First National’s vice president of economic development and marketing, then approached the town of Lovell, which in turn donated a site for the development-an old clay and brick manufacturing plant which he calls “a junk heap.”
The location, however, was ideal-just three blocks from the town’s main street and surrounded by other low- to moderate-income housing.
With additional funding from the Wyoming Community Development Authority, Housing Trust Funds, as well as a U.S. Housing and Urban Development’s community development block grant, the project represents a true community effort and public-private partnership.
“The absolute pillar of development is partnerships,” says Reetz, who also helped spearhead successful efforts to foster downtown Powell’s economic revival. “We’ve proven over and over in our projects that not only do partnerships spread the risk and the costs, but they build an atmosphere of continued cooperation which in turn leads to the successful completion of projects.”
Today, the first four units are completed and up for sale. Based on a recent extensive state-sponsored community assessment, teachers are a primary target market for potential homebuyers, as their salaries tend to fall below the 80 percent mark ($36,400 for a family of four). Reetz is spearheading outreach efforts. Following a mid-May open house, he mailed flyers to 700 renters in the area, using a purchased mailing list. He is hopeful units will sell quickly, and is prepared to see the project through to its finish.
“We’re a bank that stimulates consensus-building and a can-do attitude,” he says, adding that First National is a fourth-generation, family-owned bank with a long-term commitment to its community. “Once community organizations have had a taste of that success, the model of participation just replicates itself. One success leads to another.”
Just north of Pittsburgh, in the three counties served by Mars National Bank, the needs are quite different. Many of the former steel workers and farmers with little or no education beyond high school are not able to afford homes in what now-thanks to the new north-south interstate-have become bedroom suburbs to Pittsburgh.
Dave Griffin, a loan review officer and community reinvestment officer, started in the early 1990s by addressing the issue very directly: with a hammer and nails. He spent a Saturday helping a Habitat for Humanity chapter build a home for a single low-income family.
Since that time, he served for five years as a Habitat board member, and spearheaded a number of fruitful partnerships with two local Habitat chapters, as well as other local nonprofits committed to maintaining and increasing homeownership among low- to moderate-income residents.
For example, he worked with the Habitat chapter to obtain a $30,000 FHLB of Pittsburgh grant to fund nearly the bulk of a $65,000 low-income home. In addition, Mars National helps channel $200,000 to $300,000 in FHLB of Pittsburgh AHP funds annually to another nonprofit, Hosanna Industries, which provides low-income homeowners with repair services at 10 percent of the market cost. Through such services, the cost to fix a leaky roof or faulty furnace no longer is prohibitive for a homeowner on a tight budget.
He emphasizes that available affordable housing helps maintain neighborhood stability, and that homeownership makes residents more committed to the community. As a loan review officer responsible for the quality of Mars National’s loan portfolio, Griffin even proved with hard numbers that the “risk of loss” need not deter bankers from getting involved. From 1997 to 2001, he carefully recorded payment statistics on the bank’s loans to low-income borrowers, and compared those with the remaining loan statistics. He discovered that in four out of the five years, the delinquency ratio among the low-income borrowers was in fact lower than the overall delinquency ratio.
“We just keep to our standards in qualifying someone for a mortgage, whether the borrower is low income or not,” says Griffin, adding that this policy makes both short- and long-term business sense. “When some of these folks improve their income and go on to achieve success in their careers, where do you think they’ll turn for their next loan?”
10 Tips to Success
This list is a compilation of lessons learned and other advice that ICBA member banks and nonprofit partners who were interviewed for this story offered to their peers considering working with the FHLBs’ Affordable Housing Program.
• Seize opportunities. As a community banker, few institutions are so well positioned to recognize and help address housing needs specific to your town or region. Open lines of communication with key players in your area and be willing to jump in as needs arise.
• Consult your FHLB. For tailored advice on how best to address affordable housing needs in your community, ask your regional FHLB’s AHP representative. For example, if a natural disaster leaves some families homeless, call your FHLB and seek advice on how you can help. The FHLB may know of regional or national initiatives, or could put you in touch with fellow member institutions on a larger project.
• Be choosy. Whether you initiate a partnership or you are approached, carefully evaluate the nonprofit or community organization on issues such as its affordable housing track record, level of expertise, board composition (both for existing knowledge and background, as well as future networking purposes), and commitment to the community.
• Plan and budget carefully. With your partners, walk through every stage of the project and agree on who is responsible for what. Prior to committing, develop conservative, hard-number financial models, along with a reasonable timeline for programmatic development.
• Determine your role. Consider precisely how involved you want to be. Some banks take the lead in seeking additional funds from local, county, state and federal bodies. Some oversee the site’s actual design and construction. Some spearhead outreach and marketing to potential buyers. Others simply sign on the dotted line of a nonprofit’s application for FHLB funding. Whatever you can offer will help the community.
• Play to your strengths. Depending on your bank’s expertise and staff availability, tasks such as project publicity, buyer recruitment and financial education may be handled better by your community partner. In fact, the target audience may receive such information more readily from a community organization; banks may seem intimidating. Stick to what you know and do best.
• Educate yourself. Many FHLBs offer AHP workshops and seminars that not only give a broad overview of the application process, but include opportunities for technical assistance and individual feedback on draft applications. Such sessions may include traveling shows geared to member institutions and community organizations alike.
• Persevere. Obtaining FHLB AHP funding is extremely competitive-most FHLBs reported approving fewer than half per round. Many applications are denied one or more times prior to being awarded funding. Don’t get discouraged. Work with your FHLB representative to hone the application and keep trying.
• Be patient. In the affordable housing arena, expect that any project will take longer than anticipated. Typically, many partners are involved, and funding may be available only in stages. Remember: When the pieces do fall into place, the rewards far outweigh the headaches.
• Foster sustained cooperation. Beyond simply convening various interested parties, building a successful partnership requires a strong commitment to working together over the long haul, and to resolving tough issues as they arise. Time, focus and ongoing communication are essential. Keep dialogue open, remain upbeat and be flexible.
Cynthia Powell is a free-lance writer in Washington, D.C.