What is a Neighborhood Finance Corporation (NFC)?
A Neighborhood Finance Corporation helps to revitalize neighborhoods through unique lending programs and partnerships with residents, governments, community-based organizations and the business community.
Why is Cedar Rapids Considering a Neighborhood Finance Corporation?
The City of Cedar Rapids has used disaster recovery funds since the Flood of 2008 for replacement housing and neighborhood revitalization. Over $43 million in funding and has built approximately 850 units of replacement housing through the Single Family New Construction (ROOTs) program. However, these funds have now been exhausted. To continue these efforts, Cedar Rapids explored a number of options to help spur housing revitalization in existing neighborhoods, and determined that the most sustainable long term option for our community would be a Neighborhood Finance Corporation.
NFC loan products includes purchase, refinance, and home improvement loans. Every loan has a repayable portion and a portion that is forgiven over 5 years. The forgivable loan is secured with a 5-year lien against the property. Rehab loans can be up to $10,000 per property every 10 years to complete improvements.
Unlike many programs the city offers with the help of federal funds, participation is not income restricted.
In addition to providing opportunities for homeowners, the investment in existing housing stock benefits the entire community by revitalizing neighborhoods and preventing older properties from deteriorating. The program provides an incentive for residents and employees to relocate to or remain in Cedar Rapids. Additionally, home improvements tend to have a spillover effect and may inspire neighbors who are not in the program to make repairs or invest in their homes. Finally, as home values increase, the City’s property tax base will also increase.
The City of Cedar Rapids, lending partners in Cedar Rapids and NFC Des Moines have been meeting to discuss the possibility of starting a stand-alone or branch of NFC Des Moines in Cedar Rapids.
Financial Partners and Goals
The City of Cedar Rapids has committed $1 million for FY2018 and is committed to an additional $1 million the next 5 years. The City dollars will initially capitalize a loan loss reserve, and then provide ongoing funds for the forgivable loan component of the program.
There are currently 5-8 financial institutions considering participating in Phase 1 loan pool funding for Cedar Rapids. The goal, in order to advance this initiative, is $8 to 10 million in commitments from a number of financial institutions.
It is projected that the first 3 years will require $625,000 in start-up funding, and that it will cash flow at year 4.
The goal is to raise $375,000 for year 1 and receive verbal commitments for the remaining $250,000 in startup funds for years 2 and 3.
Benefits of Partnering with NFC Des Moines
The Cedar Rapids program is modeled after an already successful initiative in Des Moines. Benefits of partnering with NFC Des Moines:
- NFC Des Moines has a proven track record of serving over 5,500 households with over $300 million in lending over the past 26 years.
- NFC has an experienced and dedicated staff that implement lending programs that provide benefit to borrowers and neighborhoods.
- NFC has a $20 million annual contract with Fannie Mae.
- NFC is a Community Development Financial Institution (CDFI) which has proven to be a source of inexpensive lending capital.
- NFC is a NeighborWorks America organization which provides access to organizational support, program funding and lending capital.
"The NFC program within Des Moines has been one of the most successful programs in our history. The City has invested $25 million in 25 years with over $300 million in mortgages. It has clearly provided the leverage of additional funds being invested in our City.”
~ DES MOINES CITY COUNCIL MEMBER CHRISTINE HENSLEY