SOCIAL TOPICS (Archive): COMMUNITY DEVELOPMENT INVESTING

Published, November 1993

       For many Americans, securing a home is as simple as finding the right place at the right price. But the dream of home ownership has eluded too many lower income families. That is why we are pleased to be one of three initial buyers of packaged Mortgage Investments in Low-income Communities (MILC), a pioneering program that will help bring the benefits of home ownership to a broader group of Americans.

       Marketed and structured by National Cooperative Bank (NCB) in Washington, DC, MILC is the first investment instrument in private market affordable housing. MILC consists of groups of mortgages already provided by NCB. In this way it resembles similar packages of loans made by private banks that are sold by the Federal National Mortgage Association and similar agencies.

       By purchasing these securities investors provide money that can be lent again in low-income communities for cooperative housing. And we’re able to do this in a way that, in our judgement, rewards investors with ample returns and safety. Indeed, we think the investment merits are such that future programs are likely to lure investors without social criteria.

       Here are some details. The total $26 million investment, of which we purchased $3 million on behalf of the Calvert Social Investment Fund, provides financing for 2150 owner-occupied housing units in cooperatively-owned buildings in 23 communities in 10 states.

       Unlike condominium owners, co-op residents each own a share in the total property, not just the unit in which they live. In many cases, these are “limited equity cooperatives.” That means the resale value of a share is restricted so that owners are prevented from realizing a windfall based on an unusual appreciation in real estate prices. Qualified buyers of these units are defined as families earning no more than 80% of median income for the particular city in which the housing is located.

       Buyers of affordable cooperative shares receive substantial financial advantages. Down payments are small and monthly payments are well below market rates. In the Washington, DC area, for instance, a typical unit carries a monthly payment of $290. The cooperatives are managed and maintained by resident owners in the interests of the residents through their own non-profit corporation. Therefore the benefits of ownership flow to residents (rather than for-profit developers), and every incentive exists for shareholders to make and keep their cooperatives good places to live. As we view it, people who buy their own homes are a good investment.

       The actual financing our clients are providing is the permanent mortgage loans made to the residents’ non-profit corporations. Several factors make it possible for these loans to be issued at rates that are lower than the market might dictate for buyers at this income level. Among these are state and federal grants and subsidies.

       Finally, NCB has structured the investment in such a way that investors can be protected to varying degrees from the risk of default on any individual loan. They can choose investments with different levels of risk and interest.

       The satisfying result is an excellent investment opportunity and more funds at reasonable rates for affordable housing. We are currently pursuing similar opportunities for many of our other socially responsive investment clients.