wfn.org | Board plays lead role in financing affordable housing

[NewsDesk <NewsDesk@UMCOM.UMC.ORG>]

July 24, 2001  News media contact: Tim Tanton·(615)742-5470·Nashville, Tenn.
10-71B{331}

NOTE: This report is a sidebar to UMNS story #330.

BALTIMORE (UMNS) - The United Methodist Church's pension and health benefits
agency has grown into a leading supporter of affordable housing, showing
that socially responsible investing can improve communities and generate a
good rate of return at the same time.

Voting directors of the Board of Pension and Health Benefits spent time July
20 hearing updates on the agency's involvement in affordable housing and
community development. After lunch, they boarded a bus and visited two
renovated buildings in downtown Baltimore, for a firsthand look at community
redevelopment in action. Though they had no action items on affordable
housing during their July 20-21 meeting, the directors gave the topic high
priority on their agenda.

"Today, the general board is the largest denominational investor and
probably the largest nongovernmental investor in affordable housing and
community development in the United States," said Gale Whitson-Schmidt,
deputy general secretary of the board.

The board's involvement in affordable housing began in 1990 with an
allocation of $25 million, she said. Today, the agency has committed about
$700 million to affordable housing and community development programs, and
it has financed more than 20,000 units of housing.

"However, there is still a very large need for affordable housing and
community development," Whitson-Schmidt said.

While contributing to the supply of affordable housing, the board has also
drawn a 7.3 percent annual return during the last five years through its
affordable housing program, she said. She expressed the hope that the board
will serve as a model for other institutional investors.

"It is possible to earn a good, solid rate of return for the benefit of our
participants and also improve the communities in which they live," she said.

The agency's focus initially was on developing a supply of affordable
multifamily rental housing, Whitson-Schmidt said. "As the program matured,
we became increasingly interested in single-family housing."

John English, a board member who died March 27, was instrumental in leading
the agency into supporting affordable housing. "Without John English, our
program of investing in affordable housing and community development would
not exist," Whitson-Schmidt said.

She recalled how English and other members of the board's Investment
Committee toured needy areas of New York City in 1989, at the invitation of
local community development groups. English returned from the trip "visibly
shaken," Whitson-Schmidt said. English said he had never seen those parts of
the city before, and that the board should do whatever it could to address
affordable housing.

A key stimulus for affordable housing investments has been the Low-Income
Housing Tax Credit, which was passed as part of the Tax Reform Act of 1986.
Through it, investors receive a credit against their federal taxes in
exchange for supporting the construction or renovation of houses that are
subsequently offered at affordable rents to low-income people.

The board itself doesn't benefit from the tax credit, but it provides bridge
financing to other parties involved in a project, providing them with funds
until they can receive the tax credit from the federal government. 

The board lends money to intermediary organizations, which lend to
developers that are building or renovating housing or commercial space. The
intermediary groups perform the underwriting, do due diligence and hold a
first-loss position on the investments, Whitson-Schmidt said. The board has
relationships with 17 intermediaries and continues to explore possibilities
with others.

In 2000, the board expanded its focus to include financing other needs, and
began reviewing day care centers, half-way houses, job training facilities,
charter schools and urban retail space, Whitson-Schmidt said. 

The Board of Pension members were joined for lunch and the tour by Bishop
Felton E. May, leader of the Baltimore-Washington Annual Conference, and
members of his staff. 

The annual conference and the Board of Pension could be national leaders in
changing infrastructure, said the Rev. David Casey, a United Methodist
pastor working with the Department of Housing and Urban Development and
serving as a consultant to May. "We can take the lead on providing capital
that will create mixed-income neighborhoods."

One of the Board of Pension's early partners was the Enterprise Foundation,
which is dedicated to rebuilding neighborhoods. The board has invested $100
million through the Enterprise Social Investment Corp., a subsidiary of the
Enterprise Foundation, for 13,000 units of housing, and more than $40
million through Enterprise Mortgage Investments Inc., a subsidiary of ESIC,
for 1,300 units, Whitson-Schmidt said.

The board has played a vital role in financing Enterprise projects by buying
Fannie Mae mortgage-backed securities. Fannie Mae guarantees the payment of
principal and interest.

"This is our best year ever," said Jeff Stern, president of Enterprise
Mortgage. "We're going to do over $50 million in financing this year, and we
hope to increase it next year. The pension board has been a significant
help."

The board members' tour included a stop at the Margaret Bennett House, a
29-unit building that serves low-income, mentally disabled women. The board
provided $1.8 million in equity toward the $3.4 million cost of
rehabilitating the 99-year-old building. The home opened last fall under the
sponsorship of the Women's Housing Coalition and Homes for America.

The board recently invested in a pool of mortgages for families victimized
by predatory lending in the Minneapolis-St. Paul area. The goal is to help
people who have been enticed into obtaining home loans at high interest
rates from lenders who know the borrowers will default. The board joined
with other groups and local government agencies to refinance such loans at
lower rates. 
As a result, many families in the area have more affordable mortgages and
are receiving training on how to maintain their homes and avoid being
victimized in the future.

Fannie Mae is interested in expanding the program to other parts of the
country, said David Zellner, managing director of finance and investments
for the board.

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United Methodist News Service
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