Winning ways.

Four affordable housing projects exemplify the commitment, persistence and vision it takes to build affordable housing that makes a real difference in people's lives.

Mortgage finance is an entrepreneurial field, and nowhere is that more evident today than in affordable housing. In partnership with community organizations, mortgage lenders nationwide are acting as catalysts, providing the critical financing to move affordable housing from concept to occupancy.

Affordable housing is a great deal more than simply structures priced accessibly. It is a comprehensive approach to meeting the social and economic needs, as well as the shelter needs, of low- and moderate-income individuals and families. Affordable housing initiatives require a cohesive alliance of local community organizations that understand the social needs of their communities. Political acumen also is needed to build local community and government support. Mortgage lenders are a critical component, providing expertise to assemble complicated financing packages and then funding and servicing the mortgages.

Seeking to foster such initiatives and recognize those whose efforts exemplify the best of what is possible, the Mortgage Bankers Association of America (MBA) established the annual Affordable Housing Award Program in 1989. The award program is a means to acclaim the pioneering spirit, commitment and sheer tenacity of community-based, nonprofit organizations that are creating homes for low-income individuals and families nationwide. These industry players are turning potential into reality, dreams into homes and devastated inner cities into neighborhoods.

Willard Gourley, a former MBA president and the chief sponsor of this award, says, "One of the most important benefits has been to heighten the attention of our own members to the importance of being involved with local initiatives. And once they are involved, to share it with others. What we have seen in the nominations is heavy, local involvement by mortgage lenders. This national recognition brings much-needed attention to their efforts and educates others about what works. Financial reward is critical to nonprofits whose budget depends on contributions. [The sum that accompanies the award] is one way MBA rewards and supports their ongoing efforts."

MBA members active in these affordable housing initiatives nominate outstanding nonprofit organizations. First-and second-place winners are chosen each year for the categories of production of ownership housing and production of rental housing. First and second-place winners are awarded $10,000 and $5,000, respectively. In 1994, approximately 50 nominations were received, representing the creation of more than 6,500 affordable housing units. These projects serve as models for others to follow, and are published in MBA's annual "Compendium of Affordable Housing Initiatives." Together, mortgage lenders and community organizations are making a difference in affordable housing.

Habitat at work in Dallas

The 1994 first-place winner of the Ownership Housing Production Award was Dallas Habitat for Humanity. A sum of $10,000 accompanied the award.

Habitat for Humanity is the world's largest builder of affordable housing but "in fairness, there isn't much competition out there." That concession comes from Jim Pate, executive director of the Dallas Habitat for Humanity (DHfH). That is about the only concession you'll get from this man.

Pate first caught "habitatitis" - characterized by an uncontrollable desire to help others through volunteer, manual labor and a 24-ounce hammer - in the mid-1980s.

MBA awarded DHfH its 1994 Ownership Housing Production Award for the construction of 18 new homes in an inner-city neighborhood, the rehabilitation of two others and its participation in more than 100 outreach programs. That is just the tip of the iceberg for this organization, which has built more than 128 homes and repaired or renovated hundreds more.

DHfH is one of more than 1,100 volunteer affiliates of the Habitat for Humanity International, which built more than 7,800 homes worldwide in 1994 alone. DHfH's annual budget - slightly more than $1 million - comes, in generally equal parts, from private and corporate donations, civic organizations and traditional grant sources.

DHfH first devised a master plan for Dallas' Garrett Park East neighborhood back in 1990. "When we first came into this neighborhood, we started with 20 lots to build on," says Pate. "From there, we were able to acquire an additional 25 and have since built 45 homes, completing the master plan we drew up five years ago. The last apartment building across the street has been demolished, eliminating the last blight here."

In 1989, Garrett Park was a 16-square-block, deteriorated, crime-ridden, inner-city area of East Dallas. Homicides were common; white, elderly residents lived among street corner drug deals; and gangs seemed an attractive option for the idle young. Today, it is a family neighborhood and one of Dallas' shining lights.

The statistics are impressive: 45 new affordable homes (one-third of the neighborhood), a 70 percent decrease in police calls to the neighborhood from 1990 to December 1993; a nonprofit and a for-profit daycare center; and the revitalization of a local church, which has become an active community advocate establishing a new support center to provide a myriad of services, including emergency assistance; and, notably, the commitment of Fiesta, one of Texas' largest grocers to open a new super store in the neighborhood.

Appraised values have risen as well. DHfH's first home was appraised at $29,000 with subsequent homes coming in around $59,000. Pate notes that the appraisals on the older, existing homes are also on par with the $55,000-plus figure thanks to the revitalization of the neighborhood.

A volunteering spirit

A tutoring program was begun by a college student working with DHfH that has since become a source of college credit at Southern Methodist University for those doing the tutoring. The program has also become a national model for similar initiatives in other cities. DHfH built a house, which is now rented by SMU, to house a few of the college students who have become part of the neighborhood. Today, some 60 students tutor 150 neighborhood children.

Listening to Pate describe the phases of transforming Garrett Park East, one might conclude it was easy. It wasn't. DHfH relies on charitable donations (by policy, DHfH does not accept government funds) for both hard dollars and in-kind contributions of trade, labor and hard goods. And DHfH is an active solicitor.

The architectural plans and engineering for this project were donated, and the surveys were done by student interns, DHfH staff and several Habitat families. The labor was provided by volunteers and the homebuyers themselves.

DHfH screens potential buyers carefully, evaluating commitment and a willingness to work. In lieu of a down payment, buyers invest 400 hours of sweat equity, with a minimum of 50 hours per adult to be spent on their home. DHfH builds homes at cost with as much volunteer labor (about 80 percent, depending on local building codes) as possible. The Dallas Habitat organization adds only 7 percent for administrative costs and routinely produces homes that have mortgage payments that are significantly less than rental rates. As a result, DHfH sold these homes at a hard cost of approximately $50,000.

DHfH provides an interest-free, 15-year, 25-year or 30-year mortgage, which it services in-house. "Home owners come by to pay their mortgage, and in that way, too, we stay in close touch," says Pate. The average DHfH monthly mortgage payment is $300, which includes taxes and insurance.

Dallas MBA gets involved

The Dallas Mortgage Bankers Association (DMBA) is not immune to habitatitis, and its members routinely provide volunteer labor for DHfH housing projects. "Whether it is a small rehab job or the construction of a new home, we've found working with DHfH to be particularly gratifying," notes A. Vin McMaster, president, McMaster and Company, Inc., and past president of the DMBA.

McMaster nominated DHfH because, he says, "it is one of those success stories you always wanted to hear about. Being involved with DHfH, both as an adviser and also with the DMBA, I know first-hand of the quality and commitment these people have. It is not a giveaway program at all; DHfH pulls people in and opens the door to opportunity. It's up to them to build the door, the walls and the roof, and they do."

The success of DHfH is garnering national attention. Notably, DHfH has minimized building costs by using pre-fabricated walls and ceiling panels, delivered to the site. In addition, the organization was active in lobbying for a new law that allows cities with more than 1.5 million in population, like Dallas and Houston, to provide land received under tax foreclosures to nonprofits at below-market rates. This, Pate notes, will dramatically increase DHfH access to land and housing units.

DHfH has six staff members, an annual budget of about $1.1 million and a goal well beyond its apparent means. "We started small, building five homes a year, then 12, we built 30 in 1994 and project another 45 for 1995. Awards like the MBRs give us encouragement. We've started strategic planning for what we call "Vision 100," an optimistic goal to become a 100-house-per-year builder."

The $10,000 that came with MBA's award was stretched to upgrade DHfH's tool inventory, used as matching funds for assistance grants to Garrett Park East residents and put toward the purchase of two 1.5-ton trucks. That is, Pate concedes, a stretch, but stretching dollars, boxes of nails, volunteer labor, gifts in kind, sweat equity and everything else is simply how DHfH operates.

The one-stop shop works for Chattanooga homebuyers

The runner-up in the ownership housing production category for the affordable housing awards in 1994 was the Chattanooga Neighborhood Enterprise, Inc. In Chattanooga, if it relates to affordable housing, it relates to Chattanooga Neighborhood Enterprise (CNE).

In 1994, CNE provided more than $20 million for the purchase and/or repair of 537 affordable housing units. CNE's efforts produced $16.8 million in first- and/or second-mortgage financing for 342 affordable homes; $1.7 million to repair and/or renovate another 146 homes; the production of 17 affordable housing rental units and technical assistance to 32 families and organizations. MBA's $5,000 second-place award was used to provide second mortgages that enabled 10 low-income individuals and families to purchase homes.

Marilyn McDonald, branch manager for Collateral Mortgage's Chattanooga office, credits CNE with revitalizing housing in Chattanooga's inner city - a strong and emphatic statement from a self-described skeptic. "I've been in mortgage banking for 30 years, and I am a skeptic by nature. Initially, I thought CNE was just another program with problems but what they have done has made me a believer," she says. McDonald's work with CNE prompted her nomination of this organization. Collateral is a secondary market purchaser and servicer of loans originated by CNE.

CNE also has expanded its activities to include technical and financial support of other neighborhood-based nonprofit housing development activities; support of neighborhood community improvements; expansion of its role in the preservation and rehabilitation of affordable rental housing; involvement in the development of a national home ownership initiative, along with Fannie Mae, Freddie Mac, FHA and others; and a nationwide contract with GE Capital Mortgage Insurance Companies, Raleigh, North Carolina, to provide postpurchase counseling to homebuyers of affordable housing.

CNE began producing housing in 1987 and has since assumed a number of key housing roles on behalf of the City of Chattanooga, including the homeowner rehabilitation program. In two short years, CNE got through a waiting list of 200 low-income homeowners in need of financial assistance for home repairs. Homeowners are now seen within two weeks and in emergency situations within 24 hours.

CNE is a model program and frequently hosts housing officials from other cities interested in seeing firsthand an approach that works. The formula, McDonald notes, is the combination of effective market-sector production methods, supported with a variety of funding. And it works. CNE has provided more than $56 million to finance some 2,650 affordable housing and neighborhood revitalization loans.

In the aftermath of an earthquake

The winner of MBA's first-place award in 1994 for rental housing production was the East Bay Asian Local Development Corporation (EBALDC).

In the aftermath of California's 1989 earthquake, an affordable housing project that could serve as a national model began to take shape in a poor neighborhood in central Oakland, California. In an area blighted by rundown housing and crime, a boarded-up nursing home has been transformed into a bright and spacious 43-unit, single-room occupancy (SRO) property. Its residents are low-income, single parents, elderly and handicapped residents - 50 percent were previously homeless.

The story behind this award-winning $2.5 million rental housing model begins with the earthquake and follows a tremor line of obstacles that threatened to derail the project more than once.

The 1989 earthquake damaged many of the existing SRO properties in and around Oakland. The Northern California Grant Makers, a consortium of nonprofit foundations, awarded EBALDC a grant to replace Oakland-area SRO units lost in the earthquake. That's when Teri Beckman left her job as a development specialist with the Downtown Housing Improvement Corporation in Raleigh, North Carolina, to come on board as project manager.

The EBALDC is a community-based nonprofit corporation with more than 17 years of experience working in low-income communities in Oakland. Initially focused in Oakland's Chinatown area, EBALDC has expanded its economic and housing development and community-planning activities to include many of Oakland's low-income neighborhoods. EBALDC acts as a catalyst for new economic development by providing technical assistance and small loans to support new small businesses.

Making it happen

Named after Hugh Taylor, a former official with the Department of Commerce's Economic Development Agency who assisted EBALDC in developing its multiservice Asian Resource Center House, this project seems to have worked in spite of itself. At $1.2 million, the price tag for the boarded-up, vacant facility was too high. Beyond that, it was located in a deteriorating neighborhood, which had zoning obstacles to SROs. And, as if that wasn't enough, there was racial tension to overcome and neighborhood opposition to adding low-income housing, which some believed would add to the already-active local drug market.

Behind the boarded-up windows, Beckman discovered large, oversized rooms, many with private baths, over-wide hallways and a courtyard. A building, she realized, that was uniquely suited for an SRO complex. "This was ideal. It was in relatively good shape, and I could see the potential for adaptive reuse. But the price was ridiculous." Beckman was surprised, and pleased, when a low offer was countered with an acquisition price of $650,000, but the tremors had just begun.

Financing was the biggest hurdle. EBALDC realized an uncertain cash flow would derail this SRO project. Fortunately, it secured a contract under HUD's Section 8 program early on for approximately one-half of the units. This contract ensures EBALDC a cash flow that is a combination of a tenant's payment, set at 30 percent of income, with HUD making up the difference. The nonsubsidized units rent for $285 and $307 per month, including utilities - far below Bay Area market rates.

The second step was taken by San Francisco-based First Nationwide Bank. Dorothy Broadman, first vice president with First Nationwide, applied for and received an Affordable Housing Program (AHP) award from the Federal Home Loan Bank of San Francisco for this project, which funded a second mortgage. First Nationwide's expertise here, notes Beckman, is the only way EBALDC could have tapped into that source. "Broadman is very skilled at getting these awards. Without her, and Christine Cart, the loan officer who worked with us, this project would have been stalled early on," she says.

The project's financing is indicative of the complexity of this partnership. The Bank of America Community Development Bank provided a short-term construction loan of $770,000; the State of California Housing and Rehabilitation Program financed $825,000; $724,000 came from the Redevelopment Agency of the City of Oakland; and the Cowell Foundation gave the project a $230,000 grant. And, in addition to the second mortgage, First Nationwide provided a first mortgage of $470,000.

Sometime between acquiring the building and signing loan documents at closing, the building was renovated, zoning exceptions were requested and granted and neighborhood groups were formed and became part of the process.

Building neighbors

"NIMBY [not in my back yard] could have killed this project in a lot of ways," Beckman explains. "The neighborhood is very low-income, and the neighbors were concerned about additional low-income housing. EBALDC formed a coalition of neighbors who gave us their input and, in the end, made it a better building. In addition to fears the project would worsen the drug problem, there were some racial issues we had to address as well."

EBALDC is a community development corporation with strong Asian roots and participation. That was, she notes, perceived as a threat to the neighborhood's African-American and Hispanic residents. The coalition EBALDC built with the neighbors calmed those fears, and in fact, the Hugh Taylor House residents are "refugees from the streets here."

Single-room occupancy projects have a different clientele than other affordable rental projects, and this SRO project was no different. Typically, SRO residents are low-wage earners, transients, single parents and the homeless - residents who come and go more frequently and whose needs are pretty immediate.

Managing an SRO entails much more than property management. EBALDC has hired an on-site social services worker, and the landscaped courtyard is a pleasant gathering place. The units are single rooms, with a private bath and double rooms, with a bath in between, which are suitable for single parents. Residents cook together, share child care and socialize together. Though some SRO units have efficiency-type kitchenettes, many found that insufficient, particularly the single parents. EBALDC used almost $6,000 of the MBA's award to purchase 13 full-sized refrigerators, with the remainder used to reduce the organization's operating deficit.

The success of the Hugh Taylor House is exceptional, which Broadman credits to EBALDC's commitment and expertise in community development. Discussing why she nominated this project for MBA's affordable rental housing award, she noted that First Nationwide "finances a lot of these kinds of affordable housing projects, and this one stands out. We've worked with EBALDC for a number of years. They are financially stable, they build and manage very good projects. We consider them to be a high-quality developer that is sensitive to the community. We've seen some developers of SROs have trouble meeting debt coverage. EBALDC and the Section 8 contract with HUD made this project work."

After two and a half long years, the Hugh Taylor House was completed in May 1994, and the first resident came in July. By October 1, 1994, the project was fully occupied, which is about the time Beckman flew to Boston to accept the MBA award at the association's annual convention. "The recognition is nice when you've worked on something for years."

New dawn for Oregon farm workers

The runner-up award for rental housing production in 1994 was won by Nuevo Amanecer Limited Partnership, Woodburn, Oregon. "Nuevo Amanecer," which is Spanish for "new dawn," is an apt name for the Woodburn, Oregon, group of nonprofits that created this rental housing project for farm workers. For, indeed, a new dawn rose for 50 low-income farm worker families when Nuevo Amanecer Limited Partnership's six-year effort culminated in the completion of a $3.5 million multifamily complex.

This project was driven by dedication, tenacity, vision and cooperation. It took six years and the cooperation of three separate nonprofit housing groups, which make up Nuevo Amanecer, and 13 different funding sources. And in that time many obstacles arose, not the least of which were rising interest rates and an increase in construction costs, which required additional funds.

Portland, Oregon-based Ward Cook, Inc., a wholly owned subsidiary of West One Bank, S.B., also of Portland, played a key role by negotiating, closing and disbursing the loans, grants and tax credits that made up a complicated financing package. West One received a $200,000 Affordable Housing Program grant from the Federal Home Loan Bank of Seattle and also provided a $1.46 million construction loan. A lending consortium of 17 banks, including West One, provided permanent financing. This financing package kept rent levels at 35 percent of market rates, with a four-bedroom apartment renting at $385 per month.

Alma Grijalva, executive director of Nuevo Amanecer, explains that rural affordable housing is critical in Oregon, a state that is one of the nation's largest agricultural producers. The idea for this project emerged in 1988 and was pursued diligently even though Nuevo Amanecer did not have any full-time staff until 1994.

Grijalva explains how this apartment complex came about - the first of three planned phases. "This project is a direct result of a seamless partnership and mutual respect for each other's expertise. The number one struggle has always been a lack of funds, in persuading the private sector to help. West One has learned and understands our needs; we could not have done this without them."

More than housing

She is quick to point out, however, that funding is only half the story. Nuevo Amanecer doesn't "just do garage sales. We deal in real issues. It's more than housing; we build communities. I won't say we don't have gangs, but we do not have any graffiti; residents respect the property; they feel a sense of privilege and pride in their new home."

This community includes a strong tenant association, a bilingual/bicultural property manager and comprehensive social services, including health screening, legal aid, basic life skills training, daycare and English as a second language (ESL). The family orientation is well established. A Neighborhood Watch group is active, parents attend ESL classes with their children and Nuevo Amanecer has established a youth group and a soccer league. MBA's $5,000 award, Grijalva says, will be used to build a new playground and enhance security at the property.

Increasingly, cities and municipalities recognize that affordable housing is the axis on which economic development turns. These four projects exemplify the fact that "affordable housing" is no longer the oxymoron it used to be. Instead, the dedication, tenacity and commitment behind these projects is making affordable housing a reality for families across the nation. In our nation's cities, neighborhoods and rural areas, we see not just incremental gains, but, increasingly, community spirit and entrepreneurship are driving significant gains.

As others join the affordable housing campaign, these award-winning projects are models that will be emulated, modified and customized to meet specific needs. Whatever the variation, however, the success these dedicated lenders, community advocates and housing developers have achieved shall inspire others to achieve the same.

Anita Willis-Boyland has covered the real estate finance industry as a reporter, editor and writer for the past 10 years. A former deputy editor of Real Estate Finance Today, she has published numerous articles and books on affordable-housing initiatives.