LISC loan helps NHS keep mortgages localWritten by Zach Davis | | firstname.lastname@example.org
The Local Initiatives Support Corporation (LISC) announced May 12 that it will provide a $600,000 loan to the Neighborhood Housing Services (NHS) of Toledo to keep foreclosed mortgages in local hands.
With the loan, NHS will purchase the mortgages of 63 homes scattered throughout the Toledo area for 50 cents on the dollar.
“This is a brand-new concept,” LISC Senior Vice President for Lending Greg Maher said. “Toledo is on the cutting edge on this program. We haven’t seen it before and we like that. We like to see creative and innovative approaches to community development finance and this definitely presented that and much more.”
The city’s mortgage problems began last year with the collapse of the secondary market, which allows for nonprofit lenders such as NHS to issue multiple loans simultaneously. Without the help of the secondary market, if NHS were to loan money to someone to buy a house, for example, they would need to receive all of that money back before having that same amount of money available to loan again.
“[The secondary market] made bad investment decisions, they couldn’t make their payments and they loaned money out long but had to make payments and didn’t have the cash,” NHS Executive Director William Farnsel said. “It was a very important mechanism to leverage the loan capital we had in this community. That mechanism that allowed us to leverage the cash locally disappeared.”
With the secondary market’s collapse, loans that were previously sold to the entity were being given back to the previous investors, who lost money in the process. To be released from the investment, the financiers began taking on the mortgages of 130 Toledo homes.
“We had about $200 million of mortgages sold to this entity representing about 130 customers,” Farnsel said. “When this collapse occurred, we kind of threw up our hands and said ‘What’s going to happen to our borrowers?’ I really didn’t have a solution. I was a disaster looking for someone to help.”
Farnsel’s biggest concern was losing the mortgages to out-of-state entities that would not work personally with the customers and would be less sympathetic to arising problems such as the loss of jobs, injuries preventing one from working or any other financially straining situation as NHS would.
“We had a lot of mortgages with this entity and our concern was the customers that we had this long relationship with would now soon be dealing with an investor in California, Texas or someplace else,” Farnsel said. “They would be losing that ability for local flexibility for somebody that might be in trouble.”
Desperate to find some way to help, Farnsel had a unique idea. He began searching for a loan so that NHS could buy the mortgaged properties in order to keep the control in local possession.
“We had a little money but we didn’t have anywhere near $2 million to buy these mortgages back dollar-for-dollar,” Farnsel said. “We needed to find somebody to loan us some money. We speculated that we needed about $1 million, so my cold call to all my friends at the banking community was ‘Hey, this is Bill. I need $1 million. Can I swing by this afternoon and pick it up?’”
Farnsel met with multiple organizations but said that although they were all “intrigued” the state of federal regulations and the tight constraints put on lenders by the government made it too difficult to assist. He then began meeting with more uncommon candidates, including the state of Ohio, the Ohio Housing Finance Agency and the Ohio Capital Corporation, but none were able to help.
Then Farnsel found LISC, a non-profit organization with a local branch in Toledo.
“I was crying to [Toledo LISC Senior Program Officer] Kathleen Kovacs and was saying that everyone will take me to lunch and no one will take me seriously,” Farnsel said. “She said ‘I will take you seriously.’”
That lunch with Kovacs moved the idea up to Senior Executive Director Hugh Grefe, who was in favor of the unique proposal.
“I said ‘This is a great idea, let’s see if we can convince a few of our friends in the home office’,” Grefe said. “We knew this would be a little bit atypical.”
The decision went to New York, where LISC’s national office decided to provide the $600,000 loan to NHS, a move that may soon become much more common thanks to Farnsel.
“I think it’s entirely possible that we could replicate this in other cities,” Maher said. “We do have our own capital constraints but subject to that if there are other opportunities that some of our other programs have with their local NHS’s then we are going to get the word out to our other 29 programs with a quick profile of what this loan looked like and the benefits it provided so that our local staff can think of if there are ways that we can make a loan in those locations.”
This wasn’t LISC’s first time assisting Toledo. During the past 20 years, LISC has invested roughly $90 million into the community to effect the building and renovation of 1,500 homes.
“We are a corporation that supports initiatives that are local,” Grefe said. “Our job and our mission is to try and empower organizations such as NHS to try and restore strength and vitality in communities and help markets become successful and sustainable to create communities of choice. Places where people want to live, not where they are forced to live.
“We try to promote reinvestment to reverse disinvestment. Something like this that may not seem to be our typical work is an exact example of something that tries to stem the tide of disinvestment in communities.”
Although Farnsel was able to negotiate the purchase of 63 mortgages, that still leaves more than 60 other properties which NHS was unable to obtain. As for their futures, Farnsel hopes to find a solution.
“I’m happy for those that we could get control of but I’m disappointed and saddened that we can’t help the people on the other side,” Farnsel said. “Somewhere, someway there’s going to be a solution for the other 60, we just don’t have it in hand right now.
“Sixty borrowers may not sound like a lot but it is a line in the sand. It’s what we have to do to preserve this city — one house at a time, one neighborhood at a time.”