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Down home help.


Fannie Mae is one of the few U.S. corporations using the low-income housing tax credit to help meet the desperate need for affordable housing in rural areas.

The corporation sees these tax credit projects as a way to battle the unseen housing crisis that leaves a large proportion of rural residents unable to buy or rent housing, or traps them in substandard units.

Fannie Mae joined with Rural Housing Services (RHS), a subsidiary of the Housing Assistance Council, to provide equity to help develop several rural housing projects. The corporation has funded four projects since the partnership was announced in October 1989.

In conjunction with RHS, Fannie Mae has invested more than $1.3 million in four rural housing projects. Funded projects include the Sanders-Black Apartments in Eutaw, Alabama, a 26-unit townhouse complex rented to low-income rural families; North Clinton Manor Apartments in Clinton, North Carolina, rented to low-income elderly tenants; Grand Gorge Apartments in Grand Gorge, New York, conversion of an old school into 24 low-income elderly units; and Salerno Village, a 42-unit low-income project in Stuart, Florida.

Funding for the projects also comes from the Section 515 multifamily rural rental low-income housing loan program of the Farmer's Home Administration.

Many of these rural residents are elderly, poorly educated and earn low incomes, often $10,000 a year or less. Many formerly earned their livelihood as tenant farmers, only to be displaced because of age or mechanization.

David O. Maxwell, chairman and chief executive of Fannie Mae, said the low-income housing tax credit is an effective tool to help create affordable housing. Use of the credit helped develop 120,000 low-income units in 1987 and 1988, according to Maxwell.

"Fannie Mae is America's largest corporate advocate and user of the tax credit," Maxwell said. "To date, we've made commitments to invest more than $125 million to assist some 7,000 households. We've learned that use of the credit is a way for all involved to do well by doing good."

The Housing Assistance Council (HAC), established in 1971, works to improve housing in rural areas using a combination of loan funds, technical assistance, research, publications and education, among other tools. Rural Housing Services is a wholly-owned, nonprofit subsidiary of HAC formed in 1983 to develop rural rental units using tax-advantaged syndication and the low-income housing tax credit.

The cooperative venture with RHS involves the acquisition and renovation, or construction of permanent rental housing for low-income people living in rural areas. RHS develops or locates rental housing projects that can utilize the low-income housing tax credit for limited partnership equity investments. RHS and a local group act as co-general partners to develop low-income rural housing, and Fannie Mae is the investing limited partner.

After investing in the RHS project, Fannie Mae then is able to use the low-income housing tax credit. Once the syndication and tax credits are exhausted, the local community groups funded by RHS buy back the buildings, on the condition they remain as low-income units.

Fannie Mae's equity investment is coupled with low-interest financing provided by the Farmers Home Administration (FmHA). Private lenders will provide construction financing, and bridge financing, if required.

Wendell Johns, assistant director for low- and moderate-income housing programs at Fannie Mae, said low-income housing tax credits were a compromise measure created in the wake of the tax reform act of 1986. "Tax reform had a tremendous [adverse] impact on the ability to produce low-income housing units, by the elimination of incentives that were in existence at that time," Johns said. "We saw that the tax credit was another way to produce housing units."

Because the FmHA already provides debt financing, Fannie Mae decided it could best serve the housing needs of these rural residents by providing the equity, he said. "For Fannie Mae, it helps us to promote more affordable housing units than if we looked at it strictly on the debt side, and allows us to focus on areas that really need that housing," Johns said.

Although Fannie's arrangement with RHS removes the need for the firm to seek out qualified projects in which to invest, the firm doesn't just write checks. "We do quite a bit of due diligence. We get comfortable with the parties before we go in," according to Johns. Groups that receive funding must provide Fannie Mae with financial progress reports, in addition to maintaining their ongoing compliance with FmHA regulations. "This is an investment for us, and consequently we are concerned about how much we're willing to pay for the tax credits," Johns said.

Fannie Mae pays out its equity investment to selected projects in installments, and in return, gains a dollar-for-dollar reduction in its corporate taxes.

Fannie Mae's active participation in financing rural housing is particularly important. "Special situations occur in rural areas," Johns said, because most rural developers and community groups don't have the experience or resources to attract financing in large amounts. "There's a dearth of strong players in that market," Johns said.

But the need for affordable rural housing is great. In a December 1989 joint report entitled, "The Other Housing Crisis: Sheltering the Poor in Rural America," the Center on Budget and Policy Priorities and the Housing Assistance Council painted a bleak picture of the housing options of rural Americans.

Using figures from the American Housing Survey issued in February 1989 by the U.S. Bureau of the Census and the Department of Housing and Urban Development (HUD), the report shows there are 3.9 million poor households in the United States. The 1985 figures covered in the report represent the first comprehensive housing data on the state of the nation's housing released in the last four years.

According to the report, high housing costs continue to drain the meager incomes of the nation's 3.9 million poor households. The median annual income of a poor homeowner in a non-metropolitan area was less than $5,000 in 1985, equivalent to about $5,500 in 1988.

About 65 percent of all poor, rural homeowners paid more than 30 percent of their income for housing in 1985, exceeding the HUD standard for affordability. More than one of every three poor homeowner households in rural areas paid at least 50 percent of their incomes for housing.

The plight of low-income renters is even worse. A stunning 79 percent of poor rural renters--about 1.1 million households--paid at least 30 percent of their earnings for housing in 1985. Housing costs took at least half the income of 50 percent of the residents, while nearly one-third paid at least 70 percent of their salary for housing.

The disappearance of affordable housing units exacerbates the distress of rural renters. Affordable rental units for low-income households--those with annual incomes of less than $10,000--would rent for no more than $250 a month, according to the joint report.

But by 1985, there were half a million fewer of these affordable units available. While about 2.5 million rural renters had incomes of $10,000 or less, only 2 million units rented for $250 a month or less. And more than one-third of these low-rent units were occupied by renters who were not low-income households.

As if those burdens were not enough, a disproportionate number of poor rural Americans lived in substandard housing. These units had a variety of physical deficiencies, including inadequate heating, water supply or sewage disposal facilities. In 1985, about 900,000 poor rural households lived in substandard housing, according to the joint report.

Finally, poor black Americans suffer most from this rural housing crisis, even though poor white households are more likely to bear high housing cost burdens than their black counterparts. But because blacks are nearly three times as likely to be poor as whites, a much larger proportion of the rural black community faced high housing costs or were likely to live in substandard housing. The assistance of Fannie Mae helps local groups surmount some of these obstacles and produce affordable housing for some of these needy rural residents, according to John Zippert, of the Federation of Southern Cooperatives/Land Assistance Fund.

Fannie Mae will invest $297,000 in the Sanders-Black Apartments, a newly-constructed one- and two-story townhouse complex in Eutaw, Alabama. The project includes 26 one-, two-, and three-bedroom units, with basic rents from $190 to $240 monthly. Market-rate rents for the units would range from $370 to $423 a month.

Most residents of the Sanders-Black Apartments lived in shacks before the apartments were built, and about half lived without running water, Zippert said. "Almost all were in dilapidated housing. We had about 125 applicants for the 26 units, all of whom were qualified for residency," Zippert said. Faced with an impossible choice, and bound by first-come-first-served guidelines, the group could only hope it helped those in the most desperate situation.

He said all residents of the Eutaw project receive some FHA rental assistance. "About one-third pay nothing, and in fact get a utility check from the government, through us. Another third pay from zero to $100 (a month), and about one-third pay from $100 to $200 (a month)," Zippert said. About half the residents receive payments under the federal Aid to Families with Dependent Children (AFDC) program. But Zippert pointed out that Alabama also has one of the lowest rates of welfare payments in the nation.

In many cases, building new rural housing is made more difficult by the need to break through zoning or political barriers erected by local officials, who worry that the sense of empowerment that decent housing gives formerly shut out citizens may dilute their hold on political power.

Zippert said these new residents become more active in supporting affordable housing issues and other local initiatives.

"While it was an accomplishment to build these, (the accomplishment) was small compared to the need," Zippert said. "We need to build some more, not only here, but in other places in the Black Belt."

But Fannie Mae obviously isn't offering its financial assistance to engender name recognition in the community. Mamie Blackmon said she hadn't heard of Fannie Mae's participation in the North Clinton Manor project. She was just looking for a more congenial place to live.

"I like the neighborhood better," the 70-year-old former teacher said. Activities in her old neighborhood included "some things I didn't approve of," she said. But her new apartment is modern, with large rooms. "And I'm crazy about my kitchen," Blackmon said. And Mattie Hayes, 72, likes the camaraderie of the new environment. "I like it because everybody pulls together," she said. She spends time in the summer with other neighbors, shelling peas on the front portch or just socializing.

Residents appreciate the lower rents of the assisted units. "The rent is cheaper here than in my previous apartment. I need it, on a fixed income," said Bingham Melvin. He also appreciates the red emergency light on the exterior wall of each of the brick duplex-style units that allow a resident to notify the office in the event of a medical crisis, a plus since he has to care for his wheelchair-bound wife. North Clinton Manor now is home to 40 low-income elderly renters. Fannie Mae will invest $495,200 in the project's 10 newly constructed one-story buildings. Total development costs for the project, one of the largest undertaken by RHS, was nearly $1.5 million. The units have basic rents of $261 a month for one-bedroom units, while market rents would be $468.

For Moises Loza, executive director of the Housing Assistance Council and president of Rural Housing Services, the association with Fannie Mae is another means to create affordable rural housing.

The Housing Assistance Council began putting together syndication deals to develop affordable rural housing in 1983. "With the federal subsidies diminishing, we saw this as another way to deliver low-income housing to rural people," Loza said.

"Ordinarily, any syndicator would have to find a broker and shop for investors. [By being associated] with Fannie Mae, our shopping could end, because there was a ready-made investor there. We could eliminate brokers, because we had pretty much identified the buyer, and Fannie Mae is a large, stable corporation."

"The Fannie Mae route is a little easier to follow for us. By eliminating those costs, that leaves more money to be made, and then shared, with local groups. In many cases, we may pay local groups little more of the profits."

All the projects RHS invests in must designate 100 percent of their units for low-income residents, not the 20 percent or 40 percent required by most government regulations.

Loza said RHS currently is working on three or four additional projects to be completed in 1990. The group is in the early stages of purchasing land for a project in Maryland, and working with a private developer in Georgia to complete three projects. Two, in Elberton and Ellijay, Georgia, are set to begin construction "any day now," Loza said. The third, in Adairsville, Georgia, should be underway in a couple of months, he said. That's about all RHS can handle, because the group can afford only one full-time staff person to work on these projects. "My plan is that we will probably be developing three to four projects a year, that I think our organization can handle," Loza said.

Alfred King is a freelance writer based in Bethesda, Maryland. His work has appeared in The Washington Post.
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Title Annotation:Fannie Mae and rural housing
Author:King, Alfred L.
Publication:Mortgage Banking
Date:Mar 1, 1990
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