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Bitterroot Valley loan program turns teachers into homeowners

An innovative lending program helps make homeownership a reality for schoolteachers in Montana's Bitterroot Valley.

November 1, 2007


Bitterroot Valley loan program turns teachers into homeowners

Bank president Kay Groff Clevidence has a strong commitment to ensuring Farmers State Bank (FSB) in Victor, Mont., continues its longstanding service to the Victor community and neighboring towns. Her commitment is evidenced by FSB's efforts to provide affordable homeownership opportunities for teachers in Ravalli County through a financing partnership with the Montana Board of Housing (MBOH).

Ravalli County covers much of western Montana's Bitterroot Valley, which stretches 96 miles north to south. Victor, one of several small communities in the county, is situated in a scenic spot. It lies near the Bitterroot River, between the towering, rugged Bitterroot Mountains to the west and the gentler slopes of the Sapphire Mountain Range to the east. The landscape is lush by Montana standards, boasting abundant wildlife and year-round outdoor recreation opportunities.

The area's attractions have not gone unnoticed. Ravalli County is one of the fastest-growing regions in Montana, seeing a population increase of more than 44 percent in the 1990s. According to some projections, the population will continue to grow at a rate of 5 percent or more per year.

Most of the newer residents are from outside Montana. Based on the business that has come through her door, FSB Mortgage Loan Officer Carol Holman estimates "up to 80 percent of home purchasers in the valley over the last several years have moved here from out of state."

Many of the newcomers are from higher-cost locations, and the influx has pushed home prices to all-time highs. Ravalli County, with a population of roughly 40,000, has an average home value of approximately $243,000, compared to the national average home value of $238,000. The median household income in Ravalli County, on the other hand, is approximately $46,000, well below the national average of $58,000.1/ For many of the community's workers, growth in housing costs has simply outpaced increases in income.

A focus on supporting education

When members of FSB's management team became concerned that a lack of affordable housing could hinder the ability of local schools to hire and retain teachers, the bank moved to address the issue through a partnership with the MBOH. Through a cooperative effort, the two entities designed a program of low-interest home loans and creative financing for teachers.

Clevidence credits Lee Yockey, FSB's former CEO and current board chair, with the vision and passion behind the effort. Yockey and his wife, Judy, a retired schoolteacher, had growing concerns about the Bitterroot Valley's soaring housing costs outpacing teachers' salaries. Discussions with several of the valley's school superintendents confirmed Yockey's concerns about the challenge of attracting and retaining new, qualified teachers. One superintendent shared with Yockey that his district lost several teacher candidates because of the housing problem.

"Education is so critical to our communities and our economy," says Yockey. "While the housing challenge is one faced by other essential workers in our community, our focus on education led us to start with helping teachers, at least initially."

Clevidence underscores the bank's support of education in the community. "Our philosophy is built on the importance of our schools and education. We need to do what it takes to get and retain good teachers."

The MBOH was willing and eager to work with FSB to put a program together. Bruce Brensdal, MBOH executive director, recalls early conversations with Yockey about the Bitterroot Valley teachers' housing issue.

"After our initial conversation, we began brainstorming about how we could help put together a program that would benefit both the teachers and the bank. We had already laid the groundwork for similar programs, such as our partnership with the Glacier Affordable Housing Foundation in Kalispell."2/

A dual-mortgage arrangement

The program is open to full-time teachers serving in any one of the seven school districts in the Bitterroot Valley. The teachers must be first-time homebuyers who meet income guidelines set by United States Department of Agriculture (USDA) Rural Development, meaning their household incomes must fall at or below 80 percent of the county's median household income. As a condition of participation, teachers and their families must first complete a homebuyer education course offered by the Bitterroot Resource Conservation & Development Area, Inc.

The loan program enables qualified teachers to purchase homes in Ravalli County by combining a low-interest first mortgage loan with a second, shared-appreciation mortgage loan.3/ Both loans are originated by FSB and then sold to the MBOH, with the bank retaining the servicing rights to the first mortgage. The MBOH warehouses the second, shared-appreciation mortgage loans until a sufficient number accumulates. At that time, the MBOH bundles, or securitizes, the loans and issues a private placement bond to FSB with an initial drawing equal to the amount of the second mortgage loans.

So in dollar terms, how does the dual-mortgage arrangement help the borrower? Assume a teacher with a $24,000 annual salary qualifies for an $80,000 loan under the MBOH's Single Family Home Program requirements and FSB's underwriting criteria. The teacher finds an eligible home to purchase for $120,000. FSB will originate the first mortgage loan for $80,000 at a 5 percent fixed interest rate on a 30-year term.4/

The bank will then originate a second mortgage loan for the amount of the gap between the first mortgage loan and the purchase price—in this case, $40,000. The second loan is a shared-appreciation mortgage, meaning no payments or interest are due until the home is sold or refinanced and the first mortgage loan is paid in full. At such time, the borrower will pay back the original principal of the second loan, plus the percentage of the increased value in the home that is attributable to the share the second mortgage contributed to the purchase.5/

In our example, the amount due on the second mortgage will be the original principal ($40,000) plus one-third of the appreciation. If the teacher sells the home after five years for $180,000, the appreciation on the home will be $60,000. The teacher will pay the balance on the first mortgage, or approximately $73,340, plus the $40,000 original second mortgage principal, plus one-third of the appreciation, which in this case is $20,000. The equity the teacher will realize at the time of sale will be $46,660 ($180,000 minus $73,340 minus $40,000 minus $20,000 equals $46,660).

Enabling teachers to be invested

The program kicked off in the spring of 2005, following a period of concerted promotion by FSB and the seven Ravalli County school districts, including an open house hosted by the bank. The first loan closed a few months later. To date, the bank has successfully completed six mortgage loan arrangements and has another in process.

Sue Nevin, a single mother of three and a sixth-grade teacher at Victor Middle School, is one of the first teachers to participate in the program. She had her home constructed, and was able to assist in designing the floor plan. She found the required homebuyer education classes invaluable, especially the instruction she received about the loan process and ongoing home maintenance.

Like many Montanans, Nevin left the state during the early years of her career. When she returned six years ago, she was happy to be back, but found the cost of housing to be a challenge.

"There aren't many homes in the valley that are both affordable and livable," Nevin notes. "Homes I was able to find in my price range would have required too much renovation. The program has enabled me and my children to own our very first home."

Representatives of FSB and MBOH hope the program will help many more teachers become homeowners.

"We're really looking for results," says Yockey. "The program has a lot of merit, and we have a great desire to see it succeed."

Meanwhile, Nevin and her children are excited about their new home. "Being able to own a home has allowed me to stay in the Bitterroot Valley and raise my family in a good environment. If this program had not been available to me, I would have had to move out of the valley to seek employment elsewhere. This program has been a true blessing to my family. We love our home."

And that's just what the program is intended to do: help teachers become invested in the community through homeownership opportunities.

For more information on the Bitterroot Teachers Housing Loan program, contact Nancy Leifer, MBOH homeownership program manager, at 406-841-2849 or, or Carol Holman, FSB mortgage loan officer, at 406-642-3431 or

Bitterroot Teachers Housing Loan Program criteria

Borrower eligibility:

  • First-time homebuyers who teach full-time in a Ravalli County school.
  • Homebuyer education required, including a commitment to early delinquency counseling.
  • For the life of the loan, the home must be the borrower's primary residence.
  • Household income cannot exceed 80 percent of the county's median household income per United States Department of Agriculture (USDA) Rural Development guidelines. (For more information on these guidelines, visit No asset limitations.

Property eligibility:

  • Single-family home, townhouse or condo, or new detitled manufactured home.
  • Purchase limit of $204,000 for new construction and $172,000 for an existing home.
  • No more than 15 percent of the home's space can be used for business.
  • Value of land cannot exceed 35 percent of the total property value.
  • Maximum parcel size of 10 acres, with no subdivision of land possible.

First mortgage loan criteria:

  • Montana Board of Housing loan limit of $172,000.
  • Current set-aside rate of 5 percent.
  • 30-year fixed interest rate, with no origination or discount points charged at closing.
  • Loan may be used for purchase or construction.
  • Hazard insurance deductible of $1,000 for all peril; escrow for tax and insurance.

Underwriting criteria: per Farmers State Bank (FSB).
Downpayment sources: must be approved by FSB.
Mortgage insurance: must be guaranteed by USDA Rural Development.


1/ U.S. Department of Housing and Urban Development.

2/ For more information on this partnership, see "A Unique Partnership Provides Housing Help in Montana" from Community Dividend, Issue 1, 2004.

3/ A shared-appreciation mortgage, like any loan, is not without risks. Lending institutions with an interest in offering shared-appreciation loan products should first consult with their federal banking regulator.

4/ The first mortgage loan features downpayment requirements (omitted here to preserve the simplicity of the dollar figures in our example) and underwriting criteria from USDA Rural Development's loan guaranty program.

5/ Despite a slight slowdown in sales since FSB began offering the program, the housing market in Ravalli County remains healthy and there is confidence that over the long term, home prices will continue appreciating.