Ambassadors for Cities

20 NatioNal associatioN of REaltoRs® C H A R L O T T E S V I L L E / S A N D I E G O / C I N C I N N AT I Loans and Grants Help Qualified Buyers Close the Financial Gap Scott F. Smith Homes in Charlottesville (top); The Gaslamp district of San Diego. on one level, the challenge of affordable housing is starkly uncomplicated: people have limited resources, and the available homes cost more than that. Three Ambassador cities are raising significant amounts of money to attack the problem, some with small grants and others with low-interest loans. All focus on first-time buyers, the group most likely to struggle. The three Ambassador cities all took different approaches in setting up their programs. Primarily, the differences reflect the economic characteristics of each locale. Home buyers simply need more money in some communities than in others. Large or small, creating a war chest to support home purchases takes time, energy, and the cooperathe challenge. financial assistance programs attack the problem tion of affiliated nonprofit of housing affordability at its most basic level: the gap between what organizations. Then there people can afford and prices on the market. is the matter of establishwhat the realtors® did. Several associations have received ing criteria for selecting Ambassador designations for helping to bridge that financial gap. recipients and monitoring this chapter focuses on three of them. the Charlottesville Area Association of REAltoRS® offers loans to essential service providers, the program carefully to with repayment deferred until they sell. the Cincinnati Area Board of ensure that it keeps its REAltoRS® gives down payment assistance grants to first-time buygood public reputation. ers. And the San Diego Association of REAltoRS® transfers funds to lenders to buy down interest rates on police officers’ mortgages. As shown in the stories of Charlottesville, CinCommunity impact. the CAAR Work force Housing fund has cinnati, and San Diego, made loans to help 20 police officers, firefighters, nurses, and schoolteachers buy homes in the communities where they work. its example associations that meet all has also inspired its city and the surrounding county governments to of these challenges attract create their own loan funds, which have helped many more residents. attention with programs CABR’s $1,000 grants have so far helped 150 families buy homes in Cincinnati. SDAR’s “Everyday Heroes” program has helped four police that demonstrably serve officers in its first six months, and aims to help 10 by the end of 2008 the best interests of their and 20 in 2009. communities. 21 ccdc/SKip JuruS amBassaDors For Cities C H A R LOT T E S V I L L E REALTORS® Give LongTerm Loans to Essential Service Providers historic Charlottesville, home to the University of Virginia and easily recognizable with its stately red-brick houses, is used to making publications’ top-ten lists for desirable places to live. In 2004, the year before the Charlottesville Area Association of REALTORS® (CAAR) received its Ambassadors for Cities designation, USA Today ranked the city number one. At the same time, Charlottesville was facing a serious affordability problem. In a city of 60,000, a total of 50 homes under $200,000 went on the market all year. CAAR estimated that a first-year public-school teacher could afford to pay $138,000, making mortgage payments equal to 30 percent of his or her salary, the accepted guideline for housing affordability. At that price there were fewer than a dozen homes. Housing prices were rising 15 to 20 percent a year, and salaries were not keeping pace. “The Charlottesville region now, depending on how you look at it, is either first or second in the state in terms of the biggest gap between wages and housing costs,” says Mayor Dave Norris. Ninety percent of Charlottesville’s police force lived in a town 20 minutes away, on the other side of a mountain. The city government worried that many officers might not make it to the scene in time to handle a serious emergency. “We think it’s important that members of the workforce be able to live in the community they serve, to be not only your teacher, but your neighbor,” says Dave Phillips, CAAR’s association executive. “We think that brings a great deal of pride and community spirit to a city.” CAAR observed that federal and state programs were already in place to help the poor (those earning less than 80 percent of area median income, or AMI), but nothing to help moderate-income working people (those earning between 80 and 120 percent of AMI). CAAR recognized that it could not solve the problem on its own. “We decided we needed to do something to make a media splash and get the public’s attention,” says Phillips. The association’s answer was to create a loan fund for home buyers in four occupational categories that many regard as providing essential services to the community: nurses, police officers, firefighters, and schoolteachers. Caar raises half a million, attracts attention The CAAR Work Force Housing Fund offers loans at 6 percent annual interest, repaid only when the home is sold. If a family borrows $10,000 and owns a home for ten years, for example, they repay $16,000 to the fund when they sell. Meanwhile, their monthly mortgage payment is reduced. Loan recipients must buy a home in the jurisdiction where they work. They must meet income and sales price 22 NatioNal associatioN of REaltoRs® S A N DI EGO Financial Relief for “Everyday Heroes” san Diego has long relied on its sunny climate and picturesque canyons to attract workers for the defense, biotech, and telecommunications industries. But the city’s attractiveness contributed to soaring real estate prices in recent years. Median home price is over $600,000, and the scarcity of moderately priced homes has cost San Diego municipal employees, including police officers, whose starting salaries range from $49,000 to $59,000 a year. Michael Mercurio, executive vice president of the San Diego Association of REALTORS® (SDAR) and the son of a policeman, wanted to help. “Everybody wants a police officer living in their community,” he says. “More police, safer communities.” Mercurio moved to San Diego from Cincinnati, where he took inspiration from the local Ambassadors’ down payment assistance program (see page 24). However, he didn’t think a small direct grant like Cincinnati’s would go very far in San Diego. Instead, SDAR decided to turn over the money it raised to mortgage lenders to reduce the interest rate on police officers’ mortgages. The program is called “Everyday Heroes.” “Let’s say the rate is 6 percent,” says Mercurio. “We could buy down a quarter or a half of a percent for $5,000 to $8,000, which would mean a savings of $200 or $300 on their monthly payment. For the life of the loan, that’s a heck of a discount.” SDAR set up an independent nonprofit corporation to hold the funds, the SDAR Ambassadors Foundation. Since the launch of Everyday Heroes in September 2006, SDAR has raised $120,000 through golf tournaments, member donations, and a matching contribution from SDAR’s own board. SDAR began accepting applications in January 2008, and expects to assist as many as 10 home buyers on the police force police by the end of 2008 and 20 in 2009. The association hopes to expand the program to include firefighters, teachers, and retired military personnel. “I would like to commend the San Diego Association of REALTORS® for seeing a need in our community and forming the Ambassadors Foundation “Everyday Heroes” program,” says San Diego Police Chief William Landsdowne. “Helping police officers buy homes ultimately helps our neighborhoods.” “Every time an officer does a closing or is moving in,” says Mercurio, “make no mistake about it, we’re sending out a press release, and we’re standing out there helping them. The officer is always willing to be on TV saying if it weren’t for the San Diego Association of REALTORS®, my family and I wouldn’t be carrying these boxes into this home.” For more information about Everyday Heroes, call him at 619-846-1211. 23 Apartments in the Marina neighborhood of San Diego (top); math teacher Brandy Walker, the CAAR Work Force Housing Fund’s first applicant, celebrates her new home. Michael Mercurio, executive vice president of the San Diego Association of REALTORS® criteria used by the Virginia Housing Development Authority (VHDA) for its own loan programs. For example, a family of three or more must earn less than $73,300 and can spend not more than $293,900 on a house. Since 2004, CAAR has raised $450,000 toward its target of $500,000, mostly from its own members. Loans to date total $200,000, which have helped 20 families buy homes in the communities where they work. CAAR generates considerable publicity through fundraising, which includes benefit concerts each year by big-name entertainers such as B.B. King and the B-52s. Local government now participates as well. The City of Charlottesville, surrounding Albemarle County, and nearby Louisa County all have established loan funds modeled on CAAR’s but open to borrowers in any occupations. The government funds, totaling $527,000, are held and administered along with CAAR’s by the nonprofit Piedmont Housing Alliance (PHA). Using these funds, CAAR’s, and money from VHDA and HUD, PHA has helped 119 families buy homes within the past two years. “The REALTORS® deserved all the acclaim they’ve gotten for taking the lead on this initiative,” says Mayor Norris. “I think it’s to their credit that they had the vision for this fund and spent so many man-hours over the years developing the structure of the fund and building community support for it.” For more information about the CAAR Work Force Housing Fund call Dave Phillips at 434-817-2836. amBassaDors For Cities ccdc/SKip JuruS C I NC I N NAT I Education Sometimes Is Not Enough for First-Time Home Buyers the Cincinnati area Board of REALTORS® (CABR) established a partnership with the mayor’s office in 1997 to improve the city’s relatively low home ownership rate. As REALTORS® began to familiarize themselves with the city’s 52 neighborhoods and its public home buyer assistance programs (see page 17), the partnership evolved into an Ambassadors program. However, as the participants discovered, education alone was not enough. “The most immediate impediment in the city was lack of down payment by buyers that the agents were working with,” says 2008 CABR President Karen Schlosser. “Most first-time buyers have income and they may REALTORS® pay a nominal fee to participate, just enough to cover the event’s administrative costs. The bulk of the fundraising comes from developers and builders who agree to act as sponsors. “We tell them, ‘We’re going to bring 200 to 300 REALTORS® through… we’d like to make this a showcase of your particular development. We’re going to get media coverage. In return for that, we’d like you to donate $10,000 or $15,000.’ And they usually have no problem,” says Chmiel. “You need to be friends with the developers and builders, and our relationship with them came through the city.” Last year’s rally raised $50,000. In all, CABR has raised $150,000 in the four rallies held since 2000. “On a $70,000 house, if you had to come up with a 3 percent down payment, that’s $2,100,” Barnes explains. “A $1,000 grant cuts it back to $1,100. If not for that money, a lot of people couldn’t afford a house.” have a pretty good debt-to-income ratio, but they don’t have any money for a down payment,” adds Geoff Barnes, a REALTOR® with Comey & Shepherd and a Cincinnati Ambassador. The answer, CABR decided, was to offer down payment grants to first-time home buyers. small grants go a long way a Fundraising idea tailor-made for realtors® Downtown Cincinnati at night. “What do REALTORS® do?” asks Annette Chmiel, CABR’s director of education and equal opportunity. “They spend a lot of time in their cars, driving around to show people homes. So we decided to have a road rally.” CABR selects a neighborhood to showcase and invites members to go on a tour using clues like the ones used in scavenger hunts. “Last year we worked with an historian who helped us create clues that related to animals in the architecture downtown,” says Chmiel. “There are tons of them, but most people when they’re walking through downtown are looking down at the sidewalk, or in the store windows, they’re not concentrating on the architecture two or three stories above them.” “One of them might be: ‘Past the heirloom shop where Disney’s Donald ________ meets Dawson’s _________,’ and the answer would be ‘Duck Creek,’” explains Saralou Durham, a former Ambassador. All of that money has been given out, in 150 grants of $1,000 each. Applicants must be first-time home buyers interested in living in the city, and they must complete a nine-hour home buyer’s seminar with CABR’s partner the Home Ownership Center of Greater Cincinnati. There are no income or purchase-price restrictions. While $1,000 may not sound like a lot, it goes a long way in a city like Cincinnati, where median home price is $128,500. “On a $70,000 house, if you had to come up with a 3 percent down payment, that’s $2,100,” Barnes explains. “A $1,000 grant cuts it back to $1,100. If not for that money, a lot of people couldn’t afford a house. In the past, a person looking to buy a house for the first time, you basically got with them on a wing and a prayer. This program helps everybody. It helps the REALTOR® and it helps the home buyer.” Last year, in response to rising concerns that down payment assistance from sellers might have contributed to the nation’s foreclosure crisis, CABR obtained the names and addresses of all 150 of its grantees. A check with the Hamilton County Auditor’s office confirmed that 99 percent are still in the homes the association helped them buy. To learn more about the Cincinnati Ambassadors and their down payment grant program, call Annette Chmiel at 513-842-3011. NatioNal associatioN of REaltoRs® 24 Brent miLeS amBassaDors For Cities 25 Three Steps: Money, Beneficiaries, and Disbursement Whether your association chooses to create a loan fund like Charlottesville’s, a direct grant program like Cincinnati’s, or an interest-rate buydown program like San Diego’s, here are the basic steps: Raise funds „„ „„ Decide on a target population and define it with eligibility criteria because it aims to promote police retention in the city, the SDAR Ambassadors foundation aids only first-time home buyers with two to five years in the San Diego Police Department. “We don’t want someone who is just getting out of the academy,” says Mercurio. “they could get on the force, take advantage of the loan, see they don’t have to pay it back, then quit.” Determine who will be responsible for „„ administering and disbursing those funds establish or Designate a Body to screen applicants and Disburse Funds Find Creative ways to raise money fundraising can be tough, but a financialassistance program takes a lot of fundraising—there’s no way around it. fortunately, REAltoRS’® many connections within their communities put them in a good position to raise money. Volumes have been written on the subject of how to raise funds for worthy causes. Charlottesville, San Diego, and Cincinnati all use proven methods such as pledge cards, benefit concerts, charity golf tournaments, walkathons, and corporate sponsorships. they have also come up with some innovations. for example, Michael Mercurio of SDAR recommends asking corporations for money in october so they can include it on that year’s taxes and plan their budgets accordingly, and the Cincinnati Ambassadors raise funds from developers and builders by promising them a very desirable audience—REAltoRS®. Affordable homes in Charlottesville. identify your Beneficiaries However much you raise, the need will always exceed funds available. So what subset of deserving residents should an association help? the decision will depend in part on how much an association can raise and how much money will be needed to help each beneficiary. in a very expensive city like San Diego, an association can probably offer meaningful financial assistance only to a small number of people. that is why SDAR limits its program to police, and CAAR, in Charlottesville, assists only residents providing essential services. “if you open it up [too much], you will run out of money,” says Stu Armstrong, executive director of the PHA, CAAR’s partner in the Work force Housing fund. “You’re not going to fulfill your mission and then you’re going to upset the people who donated.” family-income and housing-price criteria can further narrow the applicant pool to those who really need help. Such criteria can often be derived from state government first-time home buyer assistance programs, which often list income and purchase-price limits by county or metropolitan area. in a less expensive city like Cincinnati, on the other hand, a smaller amount of money can go a long way. the mayor specifically asked CABR not to impose income or purchase-price criteria on its grants, citing the city’s efforts to attract middle-income buyers, and CABR was willing to comply because small grants meant its mission would not be compromised. further criteria should be based on the program’s specific goals. for example, Because they are set up as professional organizations, most REAltoR® associations do not have the right structure to hold large sums of money and disburse them in the public interest. CABR, CAAR, and SDAR all found—or founded—separate organizations to do that job. in many cases, the partner will be obvious. Most REAltoR® organizations that undertake efforts related to affordable housing form an advisory body or task force to help them assess their community’s needs and design their program. if an association is lucky enough to have attracted the participation of a local housing-focused nonprofit organization— easy to do in many communities—it is likely that the nonprofit already has the expertise to evaluate applicants and disburse assistance. in many cases the nonprofit also offers home buyer education and credit counseling, important ingredients in first-time home buyer success. this is how both CABR and CAAR did it. the Home ownership Center of Greater Cincinnati holds the funds raised by CABR, makes the $1,000 grants, and also conducts the required home buyer education course. the Piedmont Housing Alliance holds the CAAR Work force Housing fund, evaluates applications, issues loans, and offers extensive home buyer education and credit counseling. Even with a longtime ally, however, an association should expect to negotiate the details of a formal financial partnership carefully. Procedures for cases on the borderline of established criteria are 26 Scott F. Smith NatioNal associatioN of REaltoRs® worth particular attention. “We set up a procedure for when those criteria were really close but didn’t quite work out,” says Dave Phillips. “if they thought it still was a good candidate for the fund, [the PHA] would call us.” A standing three-person committee designated by CAAR confers via e-mail or conference call and makes a decision. if a partner group is not readily available, the association may have to create one. that is why SDAR created the SDAR Ambassadors foundation. Any REAltoR® association interested in forming a 501(c) (3) nonprofit corporation needs to hire a lawyer to advise the board during the process, but the following steps will always apply (adapted from “How to form a 501(c)(3) Nonprofit Corporation,” www. nolo.com): Choose a unique name that complies „„ with state law file articles of incorporation „„ „„ Apply for federal and state tax Get Comfortable with Diversity. Sit down. Log on. Learn... The real estate industry is changing. Is your business keeping up? The National Association of REALTORS® offers At Home With Diversity® certification to put you at ease in today’s multicultural marketplace. Get smarter. Get more culturally connected. And—for the first time—do it all when you get online at www.realtors.org/diversity. Community and Political Affairs exemptions Create corporate bylaws „„ „„ Appoint a board of directors „„ Hold a meeting of the board of direc- tors to adopt the bylaws es and permits obtain any needed state or local licens„„ the steps can be time-consuming. it took SDAR 18 months to get the SDAR Ambassadors foundation up and running, including time to negotiate a way around the contracting requirements of the City of San Diego, which some originally interpreted as prohibiting the City from accepting SDAR assistance for city employees without first soliciting competitive bids to offer the same assistance. An association with a foundation also needs to determine how this new entity will be staffed, and how staff will be paid. for now, SDAR is using its staff to oversee the Ambassadors foundation. the foundation’s seven-member board of directors evaluates applications. amBassaDors For Cities Real Strength. Real Advantages. 27