Sue Woodrow - Community Development Senior Project Director
Published August 1, 2004 | August 2004 issue
Steve Van Helden, president of Glacier Bank in Kalispell, Mont., has a vision. That vision is to make homeownership a reality for all creditworthy low- and moderate-income families in Montana who want to purchase a home but can’t reasonably save for the down payment. Glacier Affordable Housing Foundation (GAHF), which Van Helden chairs, is already making his vision possible in a five-county area in northwest Montana, with additional pilot programs in Helena and Laurel. But the need, Van Helden says, is statewide.
Glacier Bank has partnered with the City of Kalispell for some years to provide funds for rehabilitating homes in blighted sections of the city. Additional funds, in the form of grants, have come from sources such as the Federal Home Loan Bank of Seattle. Over time, Van Helden grew frustrated, because recipients of the grant money were never required to pay the funds back.
“Grant money is hard to win,” he notes, “and it rubbed me the wrong way that the families receiving the grant money could subsequently sell their houses and go to Hawaii on their equity. What if, instead, we created an entity to provide down payment and closing cost funds for borrowers, with no repayments or interest? Then, if they sell their home, they pay us a percentage of the appreciation based on the size of the original down payment loan. The repaid money could then be recycled for future grants.”
Van Helden sold this idea to Glacier Bancorp’s board of directors. In 1995, GAHF was established as a 501(c)3 nonprofit organization, and the Federal Home Loan Bank of Seattle awarded the newly formed foundation a capacity-building grant. However, it soon became apparent to Van Helden that this seed money alone was not enough to meet the foundation’s goals.
“We needed partners,” he recalls. “If we were going to win grants, we needed to be competitive. We decided on a unique approach. We asked the Flathead Valley counties to partner together in applying for federal community development block grant and Home Investment Partnership Program funding. These grants would then be funneled through the foundation solely for affordable housing assistance. This had never been done before.”
Van Helden and Susan Moyer, the community development official for the City of Kalispell, met with each of the five county commissioners in the area and shared their idea. GAHF would serve as the conduit for any grant money awarded to the counties, ensuring the funds would be used for affordable housing assistance in those counties on a prorated basis. GAHF would also recycle any repaid funds back to each respective county, keeping each county’s money in that county perpetually.
“We knew it was a win-win deal,” says Van Helden. “The commissioners agreed, and we started winning grants.”
This multijurisdictional partnership has expanded and become the cornerstone of GAHF, pooling the collective expertise and resources of 27 diverse organizations.
“The whole concept of Glacier Affordable Housing Foundation is about partnership,” Van Helden emphasizes. “We recognized from the beginning that we couldn’t do it all. We’ve set it up so that everyone can contribute what they do best. For example, Glacier Bank provides the underwriting expertise and loan servicing. USDA Rural Development guarantees the loans. The Montana Board of Housing buys the loans under a special set-aside program. Local nonprofits advertise and prescreen applicants. Flathead Valley Community College, together with local realtors, builders, credit bureaus and others, provides the first-time homebuyer education classes that the foundation requires. It all comes down to partnering.”
To qualify for the program, applicants must first complete homebuyer training and then apply for down payment assistance. In the case of a married couple, both partners must take the homebuying course. Applicants are approved if they are deemed creditworthy and can make the monthly mortgage payments under established criteria.
Van Helden notes, “There are low-income people who have very good credit and stable employment. Those are the applicants we look for.” GAHF has had no problem finding interested homebuyers. “The applicant waiting list has never fallen below 40, and right now, we’re at 85 families,” says Van Helden. “There’s a huge need.”
The borrower’s share of the down payment can be made in dollars or sweat equity.
“One fellow didn’t have dollars to contribute,” Van Helden recalls, “but he built all the kitchen cabinets in his house. We want this to be a partnership where the client is a partner, too.”
Once approved, one of the participating banks will make the first mortgage loan to the borrower. The Montana Board of Housing, which has a pool of $5 million to $6 million set aside for GAHF clients, purchases these loans at below-market interest rates. This enables the lending banks to make below-market-rate loans to GAHF clients, which increases the clients’ buying power.
The lending bank retains the servicing of the loan. USDA Rural Development guarantees the loan and GAHF then provides a second mortgage to the borrower—at no interest and with no monthly payments—of up to $35,000, depending on need. Glacier Bank services these second mortgage loans for GAHF. In the event that a borrower sells the home, he or she repays the second mortgage based on the original loan-to-value percentage.
“If a borrower purchases a home for $100,000 and the foundation lends them $30,000 in a second mortgage for down payment and closing costs,” Van Helden explains, “the borrower will repay the principal and 30 percent of the appreciation when the home is sold. That keeps us even with inflation.” Those dollars are then recycled into additional loans in the same county.
This process has proven highly successful. To date, GAHF has made 232 down payment assistance loans that leverage Federal Home Loan Bank Affordable Housing Program funding, Home Investment Partnership Program grants (also known as HOME grants) and community development block grant dollars, private donations and recaptured loans, to the tune of nearly $4.5 million. Each loan represents a low- or moderate-income family that usually ends up paying less in monthly mortgage costs than it previously paid for rent. The total value of the homes these families have purchased is $18.6 million.
Performance has been remarkable, with only four foreclosures since the program began.
“Two of those were due to layoffs in Libby,” explains Van Helden. “In another case, the defaulting borrower moved out of state, but is making voluntary monthly payments to repay the foundation. Since we started making loans, only one was a bad experience. Considering that nearly half of our borrowers earn only 50 to 59 percent of the area median income, 1 loan out of 232 is pretty amazing.”
Pretty amazing is right. Van Helden attributes the success rate to GAHF’s loan-approval criteria and the required homebuyer training, which helps instill a sense of both personal and social responsibility in the borrowers. “The borrowers understand what has gone into providing them with this assistance,” Van Helden says, “and how, if they sell their houses, their repaid dollars will go to help someone else.”
A little help from some friends
Twenty-seven partners are helping Glacier Affordable Housing Foundation make homeownership a reality for low- and moderate-income Montanans. The list:
To Van Helden, the next step is clear.
“We want to expand statewide,” he says, “and provide a vehicle for banks to assist with affordable housing in their communities.” Just how to do that, however, has not been so clear.
“There are impediments to going statewide,” Van Helden explains. “It’s a complicated program. It’s taken me years to set this up, develop the expertise, and train all the realtors, loan officers and others involved. But even more so, I’ve struggled with how to continue winning enough grant money to meet the needs out there and how to use these dollars on a statewide basis. Recently, it occurred to me that I’ve been spinning my wheels, trying to solve the wrong problem. I’ve focused on the money problem, but that’s not the main issue. It’s really an ease-of-entry problem for banks. How can we facilitate this process and motivate banks across the state to participate in our program, so they don’t have to reinvent the wheel?”
One avenue Van Helden is exploring, together with state and federal officials, is a way to enable banks to make Community Reinvestment Act (CRA) qualified investments that could be funneled through GAHF. “While banks in Montana generally can meet CRA lending and service requirements,” he comments, “it’s hard to find CRA investment opportunities in Montana. Something like this would enable banks to make CRA-qualified investments that would go toward affordable housing assistance in their communities. We would continue to provide our expertise in getting those dollars to the borrowers.”
Van Helden has taken some additional steps in the hopes of enabling GAHF to provide affordable housing assistance across the state. Recently, the foundation received its certification as a community development financial institution (CDFI) from the U.S. Treasury’s CDFI Fund. The certification will enable GAHF to apply for technical assistance funds that could pay for a study of marketing and community needs, among other things. Eventually, as nonfederal donations increase, GAHF may be eligible for matching financial assistance funds. Van Helden also hopes the CDFI certification will “grease the wheels” for other grant awards.
And the clients? Numerous letters and comments from borrowers attest to the program’s positive impact on families and the community. One client, a single mom, sums it up.
“A new beginning for my family and a brighter future is what GAHF and the grant money have given to us. Words are not enough to say thank you.”
CDFIs and the CRA
When Glacier Affordable Housing Foundation (GAHF) was certified as a community development financial institution, or CDFI, in late 2003, it joined a group of specialized institutions that provide a range of financial products and services in underserved markets.
There are nearly 700 CDFIs in the U.S. The list includes depository institutions, such as banks and credit unions, and nondepository entities including loan funds and community development venture capital funds. CDFIs work in a variety of market niches, such as affordable housing and small business development. The CDFI Fund, a program of the U.S. Department of Treasury, certifies and provides technical and financial assistance to CDFIs. The fund was authorized in 1994 to expand the availability of credit, investment capital and financial services in distressed communities. It distributes dollars through a variety of channels, including the Bank Enterprise Awards and New Markets Tax Credit programs, and has made $534 million in awards so far.
GAHF’s CDFI certification could make the organization an attractive investment opportunity for banks, because investments in CDFIs can qualify as community development investments under the Community Reinvestment Act, or CRA. The CRA, enacted in 1977, requires depository institutions to help meet the credit needs of their communities. If a bank’s assessment area includes low- or moderate-income geographies, it must provide community development loans, services and investments in those neighborhoods. By investing in a CDFI, a bank can fulfill the investment requirement while directing funds toward specific community development goals in its operating area.
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