Neighborhood Stabilization: Local Partnerships Are Rebuilding Communities

Greater Metropolitan Housing Corporation: Pioneering Partnerships through Personal Connections

GMHC A foreclosed home in Minneapolis purchased by GMHC was rehabilitated and transformed, as these photos show. Carolyn E. Olson, President, Greater Metropolitan Housing Corporation The Greater Metropolitan Housing Corporation (GMHC) in Minneapolis, Minnesota, is recognized by lenders and other nonprofit organizations for its pioneering work in renewing distressed neighborhoods and as a leader in transforming vacant homes for low- and moderate-income buyers and renters. GMHC’s success in rehabilitating homes in the Minneapolis-St. Paul metropolitan area is a model for other nonprofit organizations. GMHC helped launch the National Community Stabilization Trust’s First Look Program in communities across the nation. First Look gives nonprofit organizations, government agencies, and housing groups the opportunity to view and buy at a discount abandoned and foreclosed properties before they are marketed for sale to the public. Since its founding in 1970, GMHC has used a multipronged approach to provide affordable housing and to rebuild neighborhoods in the greater Minneapolis-St. Paul metropolitan area. GMHC provides predevelopment lending, correspondent lending for the purchase and refinancing of mortgages, and financing for the acquisition, rehabilitation, disposition, and construction of new single-family homes. GMHC also operates five Housing Resource Centers. The centers have helped more than 75,000 homeowners and aspiring homeowners by providing construction and remodeling consultations, home improvement loans, and mortgage foreclosure–prevention programs. As foreclosure rates rose, GMHC expanded on this work and leveraged its connections with government agencies and nonprofit organizations to develop programs and funding for the purchase of REO properties from lenders. This work has proved critical to the rehabilitation and resale of homes in communities hard hit by high foreclosure rates. In addition, the work served as the pilot for the Stabilization Trust and its partnership with Neighborhood Stabilization Program (NSP) grantees. Working with Dayton’s Bluff Neighborhood Housing Services, a nonprofit organization serving St. Paul, Minnesota, GMHC developed a Contract for Deed program to help first-time homeowners who are unable to qualify for conventional mortgages buy REO properties. Work that Benefits Many GMHC’s work in the Twin Cities metropolitan area benefits from a variety of partnerships with public and private sector organizations. GMHC, acting as an umbrella organization, is coordinating resources and activities by and for organizations active throughout the Twin Cities metropolitan area. GMHC’s work is supported by the Family Housing Fund, a philanthropic affordable housing organization operating in the Twin Cities. In 2007, the Family Housing Fund established the Home Prosperity Fund to address foreclosed properties. The Minnesota Housing Finance Agency contributed the first $10 million for what became the Strategic Acquisition Fund, which loaned funds to GMHC to buy, redevelop, and resell foreclosed homes in the neighborhoods impacted by foreclosure in North Minneapolis. GMHC also was awarded $2 million in grants from Minnesota Housing and the city of Minneapolis ($1 million from each) to cover the gap between the purchase, rehabilitation, and carrying costs associated with properties and their resale price. An additional $6 million in funding in the form of reduced-rate, long-term loans was committed to the Home Prosperity Fund from TCF Bank, Thrivent Financial Bank, US Bank, and Wells Fargo. In addition, GMHC has had a long-standing $10 million construction revolving line of credit with US Bank. In 2008, GMHC’s work with foreclosed properties in North Minneapolis led to the creation of the National Community Stabilization Trust. Later, GMHC served as the local partner in the rollout of the Stabilization Trust’s pilot program in Minneapolis, and Dayton’s Bluff Neighborhood Housing Services played this role in St. Paul. GMHC and Dayton’s Bluff worked with the Stabilization Trust to develop its First Look Program in ZIP codes targeted in Minneapolis and St. Paul. At the end of September 2009, GMHC had used funds from the Strategic Acquisition Fund and its construction line of credit to evaluate more than 1,166 REO properties--900 through the Stabilization Trust alone--for acquisition. GMHC acquired 235 vacant, foreclosed properties (see map). GMHC GMHC has purchased REO properties, represented by gray dots on this map, in Minneapolis communities with high concentrations of foreclosed properties. Of these 235 properties, 91 were purchased through the Stabilization Trust and 144 were purchased predominately on the open market through real estate agents or public auction. In all, 35 properties were demolished, 57 properties were resold to other development partners, 125 are being renovated for resale to owner-occupants, and 18 are being resold directly to owner-occupants for purchase and renovation through purchase and rehabilitation loan products. Minneapolis established the Minneapolis Advantage Program to provide forgivable, down-payment, assistance loans of $10,000 to buyers of foreclosed properties. GMHC administers the program, which targets areas that GMHC and the Stabilization Trust have delineated by ZIP codes. The Federal Home Loan Bank of Des Moines awarded $1.5 million to Minneapolis for this program and the city put up $500,000 of its own funds. The Federal Home Loan Bank funds can be used for loans to home buyers with incomes less than 80 percent of the area median income. The city’s funds may be used by home buyers with incomes up to 120 percent of area median income. At its current funding level, the program is expected to support the purchase of 200 REO housing units. At the end of September 2009, 115 loans closed and 36 loans were in process. In March 2009, Minneapolis gave GMHC nearly $1.4 million in NSP funds for the purchase and rehabilitation of foreclosed or abandoned single-family units. These units are to be sold to households with incomes at or below 50 percent of the area median income. This funding is expected to transfer 52 housing units. As in other cities, NSP funds provide core funding for acquiring properties through the Stabilization Trust. Helping to Sustain Home Ownership In partnership with Dayton’s Bluff Neighborhood Housing Services, GMHC developed the Sustainable Home Ownership Program to support sustainable mortgage programs for victims of predatory lending and first-time home buyers who need assistance to become successful homeowners. The Sustainable Home Ownership Program received start-up grants of $100,000 from Fannie Mae and a two-year grant for $40,000 a year from Payne Phalen Partners. Additional funding was provided by Wells Fargo and US Bank. Operational costs are covered by GMHC and Dayton’s Bluff Neighborhood Housing Services. The Sustainable Home Ownership Program is an approved mortgage broker for Wells Fargo Home Mortgage, with access to a full menu of conventional mortgage products. Through its association with Dayton’s Bluff Neighborhood Housing Services, GMHC also has been approved as a lender through Neighborhood Housing Services of America, a subsidiary of NeighborWorks America. This partnership provides GMHC access to Fannie Mae products. GMHC also will be an FHA correspondent lender for Neighborhood Housing Services of America, enabling GMHC to originate FHA 203(k) loans (see Community Developments Insights—July 2009 FHA's 203(k) Loan Program). Providing a Bridge to Success As part of the Sustainable Home Ownership Program, GMHC and Dayton’s Bluff Neighborhood Housing Services created a Contract for Deed program called Bridge to Success. This program helps home buyers who can’t obtain financing under traditional mortgage programs to buy homes--with the expectation that they replace their three-year contract for deed with Federal Housing Administration loans or a conventional mortgage product as their financial and credit characteristics improve. During the three years of the contract, borrowers are provided with financial counseling to ensure they can transition into conventional homeownership. University National Bank provided the initial funding for Bridge to Success through its Mission-Related Deposit Program, which allows investors to make below-market interest rate deposits with the bank. In turn, the bank uses these deposits to increase community development lending. For more information on the Bridge to Success Contract for Deed Program, see the following article on the Sunrise Homeownership Alliance and University National Bank. The University National Bank finances 80 percent of each contract amount. The remaining 20 percent is covered by a $750,000 commitment from the Family Housing Fund. The Minneapolis Foundation provides a loan loss reserve fund; so far, it has allocated $67,500. At the end of June 2009, GMHC had closed 14 contracts and five were in process. For more information, e-mail Carolyn E. Olson, President of GMHC. Sunrise Homeownership Alliance and University National Bank: Building Successful Communities in Partnership Aspiring homeowners unable to qualify for conventional mortgage loans are getting a shot at homeownership through Bridge to Success, a Minneapolis pilot program that helps consumers repair damaged credit. The program encourages private investments in community stabilization efforts, and its public–private partnership models a new strategy for renewing distressed neighborhoods across the nation. Bridge to Success is the brainchild of Greater Metropolitan Housing Corporation (GMHC) and Dayton’s Bluff Neighborhood Housing Services. These nonprofits serve Minneapolis and St. Paul, respectively, Minnesota’s Twin Cities. For years, the nonprofits purchased and rehabilitated abandoned and foreclosed houses and real estate owned (REO) properties held by financial institutions for resale as affordable homes to first-time home buyers. Now, with the help of private and public backers, they have combined their efforts and created Bridge for Success Contract for Deed Program. Since opening for business in January 2009, Bridge to Success has found new homes for 13 families and is working with 12 more aspiring homeowners. Bridge to Success uses a contract for deed product to help consumers shut out of the conventional mortgage market to get back on the path to homeownership. The contract for deed is a three-year agreement between a nonprofit organization selling houses and potential buyers. The contract sets the monthly payment equivalent to what the payment on a 30-year mortgage would be with principal, interest, taxes, and insurance. But the monthly payment paid by an individual or family fulfills the mortgage obligation of the nonprofit organization that owns the property. In return, the aspiring homeowner is allowed to live in the home if he or she agrees to meet monthly with a credit counselor to discuss credit problems, ways to save money, and how to qualify for and get a conventional mortgage to cover outstanding balances for the home when the contract for deed ends. Building Bridges to Success To make this new community stabilization effort a reality, GMHC and Dayton’s Bluff Neighborhood Housing Services needed help. University National Bank, a subsidiary of Sunrise Community Banks Holding Company, suggested a collaboration that could leverage funding from the Family Housing Fund. This led to the creation of Sunrise Homeownership Alliance, a nonprofit partnership between University National Bank, Family Housing Fund, GMHC, Dayton’s Bluff Neighborhood Housing Services, social investors, and city governments. The partnership is designed to help renew neighborhoods throughout the Twin Cities metropolitan area. University National Bank uses a mission-related deposit initiative to attract below-market interest rate deposits from individuals and institutions to support community development lending. The deposits are in Federal Deposit Insurance Corporation (FDIC) -insured certificates of deposit. For example, a foundation might deposit $1 million with University National Bank in a three- to five-year certificate of deposit earning a below-market rate of 1 percent while a corresponding, traditional certificate of deposit might earn 3 percent. Assuming an alternative market rate of 3 percent, the opportunity cost of the investment to the foundation would be $20,000 per year less in interest earnings. However, the below-market-rate deposit helps support a lower cost $1 million community development lending facility. In the case of GMHC and Dayton’s Bluff Neighborhood Housing Services, this lending facility translates into support for about 10 new contract for deed homeowners and, ultimately, greater stability in Twin Cities’ neighborhoods. Thus, the depositor receives a double bottom line for their FDIC-insured deposit--financial return and positive social impact. University National Bank seeks additional depositors for the mission-related deposit initiative. As a regulated financial institution, University National Bank is required to conduct due-diligence underwriting of GMHC and Dayton’s Bluff Neighborhood Housing Services at the institutional level to provide financing facilities. University National Bank provided an initial credit facility of up to $3 million, and mission-related deposits to help deliver lower pricing on the loans to GMHC and Dayton’s Bluff Neighborhood Housing Services. As new contract-for-deed borrowers and properties are brought into Bridge to Success, the nonprofit organizations take out standard mortgage loans from University National Bank using this credit facility. Loan advances to the nonprofits are secured by respective mortgages on properties that the nonprofits are selling under contract to first-time homebuyers. The University National Bank mortgage loans cover 80 percent of the sale price established for each respective contract for deed with the new homeowners, and Family Housing Fund loans cover the remaining 20 percent. The loans provided by University National Bank and Family Housing Fund essentially recycle the acquisition and rehabilitation expenditures back to the nonprofits to perpetuate future purchase and rehabilitation opportunities. If there is a gap between the contract-for-deed price to the homeowner (driven by current market value conditions) and the nonprofits’ actual costs of purchasing and rehabilitating the property, the gap is subsidized for the nonprofits with funds from the Family Housing Fund Strategic Acquisition Fund (for more information, read the article on Greater Metropolitan Housing Corporation). University National Bank’s mortgage loans to nonprofits have a three-year maturity, but the monthly payments, with interest and principal, are calculated with a 30-year amortization. At the end of June 2009, interest rates were fixed at 5 percent, or below the market rate for commercial fixed-rate credit. Without the support of mission related depositors, these below-market rates could not be delivered. The corresponding Family Housing Fund loan also requires monthly principal and interest payments amortizing over 30 years with a three-year term. The Family Housing Fund loan had a 3.5 percent interest rate in June 2009. If a homeowner defaults on the contract for deed, and if GMHC or Dayton’s Bluff Neighborhood Housing Services are unable to make payments on the loans associated with the property, Family Housing Fund retains the right to pay off the University National Bank mortgage, gain control of the property, and presumably continue its productive use as occupied housing. The program is not necessarily targeting REO properties, but it helps connect aspiring homeowners in stable financial situations--but with subpar credit--to the properties that are owned by GMHC. As GMHC ramps up its purchases of REO properties through the Stabilization Trust and with NSP funds, it is likely that the Bridge to Success Contract for Deed Program will help transfer several former REO properties to successful homeownership. Moving Building Success Forward The program got off the ground in January 2009, after a year of planning and development. At the end of August 2009, 13 families were in new homes with contracts for deed. Approximately four families are ready to execute contracts for deed for new homes and another eight families have begun the process. University National Bank created the Sunrise Homeownership Alliance to serve as a pilot program to help nonprofit organizations implement the Bridge to Success Contract For Deed Program. The goal is to help aspiring homeowners acquire a home and address the vacant housing problem. The $3 million pilot program is a good start, though the magnitude of the community need is significantly larger because of the concentration of vacant properties in Twin Cities neighborhoods. The pilot program can help facilitate support for as many as 30 properties, and University National Bank expects that other institutions will offer their support by providing mission-related deposits so the program can grow to a more significant scale. Assuming that the pilot initiative is successful, Sunrise Community Banks--the bank holding company that owns University National Bank--expects to expand the program capacity by including loan participations from its other banks, Franklin Bank and Park Midway Bank. The holding company and all three banks are certified community development financial institutions serving the Twin Cities metropolitan area. The hope is that this work will inspire other organizations in Minnesota and other states to help aspiring homeowners and distressed communities. For more information, e-mail Jim Conrad, President of University National Bank. Return to Top

OCC's Community Affairs Department (202) 874-5556 E-mail CommunityAffairs@occ.treas.gov to receive a hard copy of Community Developments. Articles by non-OCC authors represent their own views and are not necessarily the views of the OCC.