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America's Housing

WASHINGTON : Program to Put Low Earners Into New Homes

November 04, 1990|CATHERINE COLLINS | Collins, a veteran real estate reporter, writes from Washington on housing-related issues.

In a working-class neighborhood of South-Central Los Angeles, on a site once destined to be a waste disposal facility, an unusual partnership of the public and private sectors is forming.

Community housing advocates, a major bank, a federal agency, local churches and city and state government will form the fabric of a new single-family housing development for low-income buyers--people who, despite a lifetime of hard work, would never have been able to own a home in one of the most expensive urban areas in the nation.

The development will be called Nehemiah West, one of 193 low-income housing projects nationwide to benefit from the first round of financing from the Federal Housing Finance Board's new Affordable Housing Program.

Nehemiah West is the work of two community organizing groups--the Southern California Organizing Committee and the United Neighborhoods Organization, both part of the national Industrial Areas Foundation.

After helping to defeat plans to build a trash incinerator in the community, the groups devised a plan to build more than 300 single-family homes on the site at 41st Street and Long Beach Boulevard.

"But funding these projects is much more complicated today than in the old days when HUD just wrote a check to a single private developer," said Anita Landecker, director of California programs for the Local Initiative Support Corp., which is helping weave together the multi-source financing for the project.

"Affordable housing projects, especially those in high-cost areas like Los Angeles, need a significant amount of subsidy to make a project really affordable to low-income families. So you need to layer several sources."

Although the plans are not yet final, it looks as if the city of Los Angeles will sell the 12-acre site at a reduced rate. The Catholic archdiocese is arranging with other area churches for a short-term, interest-free construction loan.

The state is providing funds through two sources: its Century Freeway Housing Program for both the purchase of the city land and an additional, privately owned six-acre parcel adjacent to the site, and through the California Housing Finance Authority, which provides a portion of the below-market owner financing.

And finally, once the homes are completed, Great Western Bank will offer special financing for the new homeowners--30-year fixed-rate mortgages at 7% interest--provided through of the Affordable Housing Program at the Federal Housing Finance Board.

"The permanent financing is a key piece for Nehemiah," said Larry Fondation, a leader of the United Neighborhoods Organization.

"Before we try to build or sell anything, we start with the market we want to serve--low-income, first-time buyers, families of four making $25,000 a year. And then we try to design a house they can afford to buy.

"These houses will be available at about $65,000. We are looking at monthly mortgage payments of roughly $575. But every time you make a slip, spend a little too much here or there, you are nudging the cost of the house up out of the range of the people we want most to serve. Low-cost financing is important."

One of the few good things to come out of the savings and loan crisis is the new public-private cooperation and creative programs such as the highly successful Affordable Housing Program.

The program is simple: The Federal Housing Finance Board, which oversees the 12 federal home loan banks, requires them to contribute a set percentage of their annual net incomes to the housing fund.

Until 1993, each of the federal home loan banks is required to contribute 5% of the preceding year's net income; it increases to 6% in 1994, and 10% in 1995 and beyond. Until 1993, $50 million is the minimum that must be contributed annually to the program. That minimum amount will increase to $75 million in 1994 and $100 million in 1995.

The genius of the program is that the money is not used to finance housing projects directly, but to provide subsidized loans to member lending institutions, which in turn use the funds to provide below-market loans for housing.

"It is the leveraging that is the key to the program's success," said Joseph M. Slye, director of public affairs for the finance board. "The money may not seem like much, but when you realize that it is just the buy-down rate, you realize how much it can do."

The leverage ratio was 14 to 1, Slye said. And in that way, the 12 federal home loan banks were able to take the $47.2 million raised in the program's first six-month cycle and create $669 million of housing construction, rehabilitation and mortgage financing.

And that translated into 193 individual projects nationwide--more than 13,700 single and multifamily units in 37 states, the District of Columbia, Puerto Rico and the Virgin Islands.

The Federal Home Loan Bank of San Francisco got the lion's share of the subsidies. Thrifts in California, Nevada and Arizona, which make up the San Francisco-based 11th District, received $12.1 million of subsidies.

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