2000 Best Practice Awards

• Montana Preservation Project
• Montana Homeownership Network

Best Practice: Montana Preservation Project

MONTANA WORKS OUT A COMPLEX PACKAGE FOR SAVING AFFORDABLE HOUSING

Statewide-Montana. The Montana Preservation Project was able to ensure that eight affordable housing rental complexes (410 units) in western Montana were preserved for lower-income families and elderly persons. Everyone involved—the sellers, buyers, communities and residents—is happy with the outcome. The apartment complexes were sold to nonprofit sponsors to preserve their affordability. One of the eight complexes was transferred separately using tax credits, CDBG, HOME and affordable housing funds. The most significant element of the packaging of the remaining seven

Bruce Brendsal receiving Best of the Best award from Secretary Cuomo (l) and Deputy Secretary Ramirez (r)

complexes is the maintenance of the Section 236 interest reduction payment by dropping the FHA insurance and moving the mortgage into a risk-share first-position mortgage. The purchase and $3.6 million in rehabilitation were financed by $9.2 million in first mortgages, $4.16 million in tax credit proceeds, $2.9 million in second mortgages, $1.43 million from the Federal Home Loan Bank and $111,000 in seller-held paper. This project is the direct result of the expiration of HUD’s preservation program since sales pending between for-profit owners and not-for-profit buyers were not finalized at the time of the expiration. These complexes were then at risk of having their rents raised, which would have removed them from the affordable housing inventory. The residents of the apartment complexes were worried that they would be forced to move as their homes were taken off the Section 8 program. The communities and the state were concerned that the affordable housing units would be lost. The Montana Preservation Project creatively responded to the challenge by working for state legislation that would have the state taking an interest risk position. The success of the project required that the State Board of Housing buy the outstanding mortgages and subordinate that debt. Success also required establishing trust between partners that had not previously worked together, simultaneous closing of seven projects with the loan purchase, funding the risk share, funding the tax credits and disbursing the FHLB funds. One of the complexes required federal legislation to permit pulling it out of a GNMA security without losing the 236 subsidy. Similar projects can be undertaken throughout the country by taking the following five steps: Identify a nonprofit purchaser Negotiate the price with the owner Identify a tax credit partner Work with the State Finance Agency Negotiate 236 interest reduction payments with HUD. Contact: Mr. Bruce E. Brensdal, Phone: (406)444-3040 Tracking Number: 89 Winning Category: Geographic and Program (Housing - Multifamily)

Best Practice: Montana Homeownership Network

Montana Homeownership Network Helps Families Purchase Homes

Helena, Montana. Neighborhood Housing Services (NHS) of Great Falls, Montana, is the point organization for funneling resources for a statewide rural housing collaborative. The collaborative provides financial and education assistance to combat the state’s dire housing situation. In 1995 36 families were helped into their own homes. This number increased to 91 families in 1997, 134 in 1998, and more than doubled in 1999 to 339 families assisted. NHS reached this number despite running out of down payment dollars for rural areas twice during 1999.

Montana ranks 47th in median income for four-person families by state as of 1997, having slipped from 40th position in 1995. There are more than 70,000 substandard housing units throughout the state. An economic and demographic analysis prepared by the Montana Department of Commerce indicated that 15.6 percent of the population is below the poverty line and that the rate is rising. More than 90 percent of the state land is considered rural. Housing costs, both rental and home purchase, are exceeding the population’s financial capacity.

In 1986, the NHS began working with local lenders and realtors to put families into homes as a neighborhood revitalization strategy. Realtors found the buyers, and NHS obtained a portion of the 6 percent mortgage funds from the Montana Board of Housing, the states finance agency. Local lenders then packaged the mortgages.

In recent years, NHS has added down payment assistance from various grants as well as homebuyer education. The Montana Board of Housing (MBOH), the state’s finance agency, a major partner in all

of the NHS programs, has provided more than $19 million to NHS in set-asides of 30-year first mortgages at a 6 percent annual interest rate. HUD would then insure the mortgage with its FHA single-family loan product.

Neighborhood Reinvestment provided $35,000 to NHS for the down payments and the Montana Board of Housing provided 6 percent, 30-year FHA mortgages. These funds assisted 14 families to buy homes. This program was so successful that the State RC&D Association’s board of directors asked that the NHS phase in the other six RC&D Areas for a similar project. This has been done, two by two, and the last two RC&Ds are just beginning to market their programs.

One other organization that has brought great strength and knowledge to the partnership is Montana’s Rural Housing Services (RHS). RHS operates a loan leveraged program with the Montana Board of Housing (MBOH), in which MBOH takes the first half of a first mortgage loan at 6 percent with a down payment and a guaranteed loan program takes the other half with no down payment and interest rates as low as 1 percent.FHA insures the mortgage, which results in loans with annual percentage rates as low as 3 percent to 4 percent, depending on income.

Of particular note is that RHS has put together a way to lend on American Indian Reservations. A project currently in mid-stream is the move and rehabilitation of 15 homes from Malmstrom Air Force Base in Great Falls to the Fort Belknap Reservation. The North Central Montana RC&D has provided the prospective buyers with homebuyer education. NHS will provide the capital for the down payment assistance and RHS will make the first mortgage loans.

Since the Great Falls NHS began its homeownership promotion program, more than 1,000 lower income families have been helped to buy homes; and NHS has closed $19 million in MBOH/FHA loans and $2 million in RD first mortgages. In addition, more than $18.5 million first mortgage loans have been leveraged by the NHS Lender Pool Loan fund for second mortgages for unbankable families over 80 percent of median income in the Great Falls area.

The Rural Home Loan Partnership, Rural Housing Services and Neighborhood Reinvestment has recognized the collaborative for its low-cost operations and high productivity. In Neighborhood Reinvestment’s second five-year Campaign for Homeownership after 21 months, the comparatively small NHS of Great Falls entered into a partnership with the very large Chicago NHS. The program helped many families realize their dream of homeownership with an amazingly simple process for reaching buyers in rural areas.

Contact: Lyle Konkol, Phone: (406) 449-5047
Tracking Number: 362
Winning Category: Program (Community Planning and Development)

Content Archived: April 20, 2011