A five-point plan drawn up by a minority real estate coalition is painted in brush strokes too broad to present a definitive blueprint for change in the lack of affordable housing, limited financing options and other socio-economic factors that result in less housing opportunities for low-income minority borrowers. But it may, however, lay the groundwork for new housing solutions.
At least that is the goal of “The five point plan: Refocusing the Future of Minority Homeownership,” a report developed by three of the nation’s largest organizations representing multicultural real estate professionals—the National Association of Hispanic Real Estate Professionals, Asian Real Estate Association of America and the National Association of Real Estate Brokers. “The government’s housing recovery efforts have not gone far enough to improve the situation facing minority homeowners,” says AREAA chair Kenneth Li.
Up to 80% of the organization members who participated in a survey said current policy efforts aimed to speed up the housing market recovery “have done little to improve” opportunities for minority homebuyers.
A major concern for these real estate professionals is that “their clients cannot get loans,” says NAHREP chair Carmen Mercado.
Respondents agree that lack of mortgage financing and tight underwriting requirements are the biggest challenge for minorities. The five-point plan calls for “more diverse solutions” that can meet the future housing needs. It demands preparation, accountability and responsibility from both borrowers and lender/servicers as the best strategy to ensure homeownership becomes a sustainable reality for more minority homebuyers.
The plan calls for the mortgage industry “to develop unique and innovative solutions” that consider the specific challenges faced by these communities due to the ongoing economic crisis. Suggestions are quite generic.
The first is a call for “balanced regulatory approach” that would support and encourage sustainable homeownership. Other suggestions are: increased diversity in the financial services market and adequate oversight of the participation of minority businesses; continued strong government support of the secondary market that will help broaden credit availability for minorities and non-minorities alike; strong customer protection oversight to restore customer and market confidence in homeownership; and mandatory financial education for all first-time homebuyers.
Until now the main source of affordable mortgage financing generated by regulatory incentives has been the federal New Market Tax Credits program that channels government-private capital into low-income and minority community development.
According to president/CEO of Community Reinvestment Fund USA of Minneapolis Frank Altman community development enterprises are “leading America out of the recession.” The executive quotes estimates showing that for every $1 gained by the NMTC program, award recipients are able to leverage an average of $21 in additional investment from the private sector. By making an equity investment in an eligible CDE, investors can receive tax credits worth more than 35% of the amount invested if they provide capital for low-income community development. The Treasury’s Community Development Financial Institutions Fund allotted $3.5 billion in NMTC credits to 99 of the 250 organizations that competed in 2010.
Recipients include fairly new CDEs like Building America Inc., awarded $35 million to use the tax credits to attract capital for high-impact projects in under-served communities with a focus not only on creating affordable housing but also to promote job growth. Established in 2010 as a subsidiary of $3.9 billion fixed-income, investment firm AFL-CIO Housing Investment Trust—BACDE is certified by the Treasury as a CDE that enables companies or individuals currently focusing on “urgent needs” in housing, business development, and much-needed construction and permanent jobs.
Capital unavailability continues to be a barrier to housing investment and economic recovery, says Altman, whose Minneapolis-based nonprofit received $77 million in federal NMTC funds. The allocation “will play a key role in helping us drive capital to businesses so they can expand and begin hiring again,” he said. Congress reauthorized the NMTC program was part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, ultimately bringing the total amount of tax credits allocated this year to $3.5 billion—which is less than one fifth of the over $25 billion requested by applicants nationwide. It shows “the continued need for investment in low-income communities throughout the country,” he said. Since the program’s inception, the Treasury has awarded $29.5 billion in allocations.
Steven T. Stull, president of Advantage Capital Partners of New Orleans, the recipient of a $56 million allocation, called the NMTC program “a tool for job-creation and economic revitalization in areas that struggle to attract investment because of poverty, unemployment and a lack of opportunity.”
IFF, a CDFI lending exclusively to nonprofits in the Midwest is collaborating with various entities to extend the use of NMTC benefits by financing small projects. The nonprofit lender/real estate consultant with nearly $200 million in assets has established an $8 million loan pool to make low-cost financing for nonprofits in Missouri eligible for the NMTC program.
The Central Bank of Kansas City CDE provided the NMTCs, the U.S. Bancorp Community Development Corp., an AH provider, purchased the NMTCs generating the capital for the loan pool, and IFF provided additional capital and will underwrite and manage all loans funded through the pool. The IFF loan pool offers low-rates, 7-year terms and interest-only payment options to community development projects that are typically too small to take advantage of the NMTC program. According to IFF executives the pool financing is a unique way to generate new sources of affordable capital and developing products that meet the financing needs of nonprofits.
Eligible borrowers for the loan pool must meet IFF’s underwriting criteria and may include nonprofits considering capital improvement projects of up to $1.5 million in census tracts designated as “distressed” or “highly distressed” under the NMTC program.
