Targeting loans to revitalize neighborhoods

Stephanie Preusch, Executive Director, Neighborhood Finance Corp.

Challenge: Polk County, Iowa, faced a challenge: People who had the ability to be mobile moved. Those who didn't were stuck in housing too expensive to maintain. When they couldn't do it anymore, absentee owners bought the property up, converted them to small apartments and milked them.



Neighborhood Finance Corp. (NFC), now in its 26th year, is a nonprofit mortgage lender focusing on neighborhood revitalization in Polk County, Iowa. We were established in response to a declining housing stock. Through the leadership of the city, county, and neighborhood and business leaders, a study was commissioned in 1989 to examine neighborhood conditions and service delivery. The results were used to develop a neighborhood revitalization program and to create an organization to provide local lending. This was NFC, which serves neighborhoods selected by the city council and county board of supervisors. NFC's current lending area is approximately two-thirds of the city of Des Moines.

Since it opened, NFC has made more than $300 million in repayable and forgivable loans to more than 5,600 homebuyers and rehabbers. In 2014, NFC closed $16.4 million in loans and $2.3 million in forgivable loans. Through Sept. 30, 2015, the average rehab completed per loan was valued at $23,600.

Our work is made possible by partnerships with NeighborWorks America, the City of Des Moines, Polk County, the U.S. Department of the Treasury, local financial institutions and Fannie Mae.

What makes NFC's lending programs unique are the forgivable loans for home improvement that come with every mortgage loan. A subsidy (forgivable loan) of up to $10,000 can be obtained to help pay for property repairs and improvements when purchasing a home in an NFC lending area. Eligible homebuyers can also receive a subsidy of up to $2,500 to assist with a down payment and/or closing costs on a purchase.

Our organization's emphasis on renovating existing structures has been a success. NFC's lending programs have attracted new buyers to Des Moines, helped people stay in their homes and increased property values.

Other customized, special-interest loan programs we offer include a partnership with Polk County and the Windsor Heights-Urbandale Sanitary Sewer District to provide financing for residents who need to replace or repair their sewer line as part of the Save Our Sewers (SOS) initiative. In addition, for those residents who only need exterior improvements, our Front Porch Loan Program assists borrowers with lower credit scores than are typically approved for home purchases.
Meanwhile, through our limited liability corporation, NFC Properties, we purchase and rehab homes in need of repair. Once the rehab is complete, the property is listed for sale.

Recently, NFC tripled its commitment from Fannie Mae, from $5 to $15 million a year. In addition, NFC continues to receive annual support of at least $5 million from local investors. The continuous availability of capital is very important for NFC, and is possible due to our emphasis on quality control, compliance with Dodd-Frank regulatory changes, strong underwriting and low default rates.
As part of our 25th anniversary, we worked with a University of Iowa graduate student to complete a study of our lending and its impact on property values compared to core neighborhoods in other Iowa cities. It found that Des Moines experienced a total average increase in property values of 61 percent during 1990-2010. The other three cities evaluated did not experience increases anywhere near this significant.

We have learned two valuable lessons from our work:

1. Neighborhood involvement. The importance of working with neighborhood organizations cannot be understated. Each targeted neighborhood goes completes a comprehensive neighborhood planning process and develops a strategy that includes commercial development, corridor improvements, park enhancements, youth activities and residential development. We have learned to be sure our lending programs support the broader activities of the neighborhood.


2. Capital for lending. It is important to maintain momentum and the confidence of banks, since they are our sole source of funding for our home improvement loans and a partial source for our purchase and refinance products. We also must maintain the confidence of the city and county so they understand the value and impact of their annual contribution to our lending program.