Document Sample
               FY 2006 BUDGET JUSTIFICATION
                                        February 2005

                                 TABLE OF CONTENTS

                                                                                 Page #

    I. Introduction                                                               3

   II. Key Activities Supported by $118 Million FY 2006 Appropriation             5
        A. Champion Homeownership Opportunities                                   5
        B. Support the Center for Foreclosure Solutions                          12
        C. Establish the NeighborWorks® Center for Homeownership Education and
             Counseling                                                          14
        D. Promote the Success Measures Data System                              16
        E. Enhance Board Oversight Skills of Local Boards of Directors           17
        F. Leverage Strategic Partners and Resources                             18
        G. Capitalize the Secondary Market                                       19

  III. Summary of FY 2006 Activities and Outputs                                 20

  IV. The NeighborWorks® System: An Overview                                     21
       H. Neighborhood Reinvestment Corporation                                  21
       I. The NeighborWorks® Network                                             22
       J. Neighborhood Housing Services of America (NHSA)                        22

   V. The NeighborWorks® Network of Excellence                                   27
       K. Financial Support                                                      27
       L. Technical Assistance                                                   27
       M. Organizational Assessment                                              28
       N. Training Opportunities and Information                                 29
       O. Expansions, Mergers and New Affiliates                                 30

  VI. The NeighborWorks® System Responds to America’s Communities of Need        32
       P. Housing Choice Voucher Homeownership Program                           32
       Q. Multifamily Initiative                                                 34
       R. Supporting Rural Efforts                                               36

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FY 2006 Budget Justification
 VII. Detailed Request: Budgets and Output Tables                                 38

VIII. Major Core Functions of the Neighborhood Reinvestment Corporation           49
       S. Strategic Plan                                                          50
       T. Capacity Building                                                       52
       U. Preserving Affordable Housing and Equity Capital                        57
       V. Organizational Assessment                                               63
       W. Training and Informing                                                  69
       X. Secondary Market                                                        86
       Y. Administration in Washington, D.C.                                      94

  IX. Budget Analysis                                                             99
       Z. Comparison of FY 2005 Estimate to FY 2006 Justification                 99


        A1.     FY 2006 Performance Plan
        A2.     NeighborWorks® Trade Name
        A3.     Organizational Chart
        A4.     Compensation Pay Bands
        A5.     Leased Office Space
        A6.     FY 2004 External Audit (draft)
        A7.     Chartered Members of the NeighborWorks® network

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FY 2006 Budget Justification


Neighborhood Reinvestment Corporation’s FY 2006 Budget Justification outlines
proposed activities based on a $118 million federal appropriation. This appropriation
will enable Neighborhood Reinvestment to meet the rising demands for its quality
training, technical assistance and grants serving more than 2,700 communities across the

In FY 2004 and FY 2005, the Corporation received a $115 million federal appropriation
(less rescission). This included $5 million each year to expand mixed-income affordable
multifamily housing opportunities.

Since its establishment by Congress in 1978, Neighborhood Reinvestment has helped
improve people’s lives and revitalize underserved communities by creating and
strengthening the NeighborWorks® System. This system is comprised of Neighborhood
Reinvestment, Neighborhood Housing Services of America (NHSA), and more than 230
resident-led, chartered organizations within the NeighborWorks® network, a nationwide
coalition of local nonprofit partnerships comprised of residents, business leaders, and
public officials.

•     Neighborhood Reinvestment builds and sustains NeighborWorks® organizations as
      a collective “network of excellence” by establishing rigorous membership and
      performance standards and monitoring productivity and organizational health on an
      ongoing basis.

•     Neighborhood Reinvestment leverages strategic private- and public-sector partners
      and resources and helps NeighborWorks® organizations to maximize the use of
      locally directed revolving loan funds.

•     Neighborhood Reinvestment builds skills and performance in the NeighborWorks®
      network by providing technical expertise, program monitoring and funding to
      improve the efficiency of the NeighborWorks® network and the broader community
      development and neighborhood revitalization field through training and sharing of
      best practices and information.

•     Neighborhood Reinvestment fosters innovation by identifying, testing,
      documenting and disseminating new products and improved processes for use both
      within the NeighborWorks® network and the housing and community development
      field as a whole.

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FY 2006 Budget Justification
In FY 2006, Neighborhood Reinvestment will particularly focus on:

•     Championing home-ownership opportunities for all Americans by giving families
      the practical information and education they need to purchase, maintain and stay in
      their homes, and providing access to a secondary market and other financing;

•     Finding solutions to the rising problem of mortgage foreclosures, which threatens to
      undermine the historic homeownership gains made by low-income and minority
      households during recent years;

•     Achieving the goals and objectives identified in the Corporation’s comprehensive
      multiyear strategic plan by further leveraging strategic partners and resources; and,

•     Accelerating innovations, including the further development and implementation of
      a new resident-driven, highly participatory evaluation tool, the Success Measures
      Data System (SMDS), designed to help community development organizations
      measure the impact of their work.

The next few pages summarize some of the key activities that a $118 million federal
appropriation would fund in FY 2006.

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FY 2006 Budget Justification

A. Champion Homeownership Opportunities
The effort to expand homeownership and economic opportunities is important to all
Americans. Research confirms what common sense suggests: homeownership is good
for families, neighborhoods, the economy and the nation. To truly prosper, America
must address issues that hinder its citizens from reaching their potential. Lack of access
to homeownership continues to be one of the issues that adversely and inordinately
affects minority, female-headed households and immigrant families, and, in turn, poses
enormous social problems and costs for American society as a whole.

The NeighborWorks® System provides homeownership opportunities in a number of
important and highly effective ways.

•     Approximately 25 percent of the clients of conventional mortgage lenders have low
      or very low incomes, compared to 67 percent of low- or very low-income
      households assisted by the NeighborWorks® Campaign for Home Ownership.

•     Approximately 25 percent of the clients of conventional mortgage lenders are
      ethnic minorities, compared to 51 percent of the households assisted by the
      NeighborWorks® Campaign for Home Ownership.

•     Approximately 21 percent of the clients of conventional mortgage lenders are
      female, compared to 46 percent of the buyers assisted by the NeighborWorks®
      Campaign for Home Ownership.

The graphs on the next two pages indicate how the NeighborWorks® System has assisted
segments of the population underserved by conventional approaches.

Despite the challenges faced by NeighborWorks® Campaign for Home Ownership
clients, performance on these loans compares very favorably to conventional and
government-assisted loans, as demonstrated by the graph on Page 8.

In FY 2006, the NeighborWorks® System will continue to focus attention on the varied
needs of underserved communities and working families with a particular emphasis on
helping qualified lower-income families and individuals purchase, maintain and stay in
their homes for the long term.

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Chart: Household Income of Buyers—NeighborWorks Campaign vs. Conventional
Lenders [ ]
[PDF, 39 KB]

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Chart: Ethnicity of Homebuyers—NeighborWorks Campaign vs. Conventional Lenders
[ ] [PDF,
35 KB]

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Chart: Comparative Data on Single-Family First Mortgage Home Purchase
[ ]
[53 KB]

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FY 2006 Budget Justification
The NeighborWorks® Campaign for Home Ownership
Homeownership is the primary source of personal wealth for most American families.
Lack of access to homeownership often prohibits the financial stability that accompanies
personal asset building. According to the 2000 Census, the median wealth of a low-
income homeowner under age 65 is 12 times that of a similar renter. Moreover, 66
percent of the total net worth of low-income homeowners is stored as home equity. By
paying a portion of mortgage principal each month, homeowners accumulate home equity
as long as property values do not decline by a fully offsetting amount. Moreover,
because home buying is a highly leveraged investment, potential increases in the values
of homes can bring noteworthy returns on the money invested in a home.

The NeighborWorks® Campaign for Home Ownership is a joint effort of government,
banks, the insurance industry, secondary markets, the real-estate community and others,
coordinated by Neighborhood Reinvestment in conjunction with more than 158
community-based NeighborWorks® organizations. Since 1993, the combined efforts of
the Campaign have created more than 81,000 new homeowners (the majority of whom
are low- and moderate-income minority families) and provided counseling to more than
471,000 individuals. As a result, $7.83 billion has been invested in many of America’s
distressed communities.

The NeighborWorks® Campaign for Home Ownership assists NeighborWorks®
organizations to set clear goals and define high quality standards. Innovative tools and
ideas, such as Full Cycle LendingSM, NeighborWorks HomeOwnership Centers®, and
Financial Fitness have also been developed, tested and supported. A steering committee
composed of executive directors from NeighborWorks® organizations helps set goals for
the Campaign for Home Ownership.

NeighborWorks HomeOwnership Centers®
Neighborhood Reinvestment has supported the development of 78 NeighborWorks
HomeOwnership Centers® throughout the nation. The Centers, created in 1997, are one-
stop shops for a broad range of homeownership services available to low- and moderate-
income families. The Centers can assist potential homebuyers with information,
unbiased advice, counseling, training, and referrals to partners such as lenders, real-estate
agents, inspectors, contractors and more. Many Centers also provide special financial
assistance to income-qualified buyers for down-payment and closing-cost assistance.
The Centers can also help existing homeowners with housing rehabilitation advice and
assistance along with maintenance training. Financial counseling to avoid credit
problems, loan delinquencies and foreclosures is also available.

Neighborhood Reinvestment expects to add 10 more HomeOwnership Centers in FY
2006. On average, after becoming fully operational, each HomeOwnership Center will
produce over 100 new homeowners per year.

Minority Homeownership Strategies: Accomplishments through 2005
One of the key goals in the Campaign for Home Ownership between 2003 and 2007 is to
reach 30,000 minority homeowners. This goal also helps support the White House’s

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FY 2006 Budget Justification
Minority Homeownership Initiative. Through 2005, the Corporation has developed and
implemented a series of strategies to meet this goal. Among the strategies are:

•   Delivering new training classes on “Reaching Underserved Homebuyers” that will
    continue to be offered regularly at the NeighborWorks® Training Institutes;

•   Designing a new “minority marketing toolbox” in 2005 that will include templates,
    tools and marketing materials to help local NeighborWorks® organizations
    implement enhanced marketing efforts to attract more minority customers as potential

•   Documenting innovative strategies successfully used to promote homeownership and
    minority homeownership in local communities through an online searchable database
    called “Winning Strategies.” This database currently includes over 250 short case

•   Promoting expansion of financial education and homeownership-education programs
    with new partners such as churches, schools and employers. Currently, more than 160
    NeighborWorks® organizations offer certified homeownership education programs,
    and nearly 80 sites offer certified financial education;

•   Working through the NeighborWorks® Center for Homeownership Education and
    Counseling (NCHEC) to initiate new partnerships to develop training and
    certification classes on homeownership education that will be offered regionally and
    nationally. A number of these courses have been translated into Spanish;

•   Hosting national symposia on minority homeownership issues, homeownership
    education and counseling, and promoting stronger partnerships between nonprofits
    and real-estate agents, credit unions and employers.

Financial Literacy and Predatory Lending
Responsible homeowners are being assaulted by aggressive and sophisticated predatory-
lending tactics. These tactics are an effort to encourage homeowners to pursue
inappropriate debt consolidation, refinancing schemes, home improvement, or home
equity loans that threaten the assets that the NeighborWorks® System has worked so hard
to help them acquire. Predatory lenders often target the elderly, minority families,
immigrants, and financially less-sophisticated borrowers with tactics that strip the
owner's equity and often cause the homeowner to lose their home.

Given rising interest rates and limited operating funds, NeighborWorks® organizations
face a growing challenge to assist low- and moderate-income families to become first-
time homeowners. Some homeowners are finding it difficult to maintain and sustain
homeownership and remain financially viable over the long term. The challenge is
compounded when new homeowners, many of whom are minorities, fall susceptible to
predatory lending tactics and suffer damage to their credit.

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FY 2006 Budget Justification
For many years, homeownership education and counseling have served as an integral part
of affordable lending in the United States by expanding homeownership opportunities,
particularly for low- and moderate-income families and other underserved households.

The benefits provided by homebuyer education and counseling include:

•   Informing households about the ongoing responsibilities of homeownership;

•   Providing a critical link between first-time homebuyers and an increasingly complex
    real-estate industry;

•   Helping families gain access to appropriate mortgage financing and homes they can
    realistically afford;

•   Stabilizing families and neighborhoods;

•   Reducing default risk to lenders;

•   Enabling families to become successful homeowners who can maintain ownership of
    their homes over the long term; and

•   Helping underserved populations, including low- and moderate-income, minority,
    new immigrant, and female-headed households, to avoid foreclosure, tarnished credit,
    and to recognize and avoid the practices of predatory lenders.

Through its Financial Fitness Program, Neighborhood Reinvestment and members of the
NeighborWorks® network prepare families to build sound finances. The Corporation
developed standards, adapted and created training materials, trained trainers to initiate
this comprehensive program, and continues to support the growth of the program. The
intent of Financial Fitness is to give participants an understanding of basic finances and
healthy banking relationships that benefit both the individual and the community to help
them ultimately become successful homebuyers for the long term. More than 80
NeighborWorks® organizations currently offer the Financial Fitness Program.

A collaboration with the Federal Deposit Insurance Corporation (FDIC) permits
Neighborhood Reinvestment to use the FDIC’s “Money Smart” financial literacy
program to train adult educators and teach money management skills to thousands of
potential homebuyers. The FDIC is planning to conduct an evaluation of the program in
fiscal years 2005 and 2006 and Neighborhood Reinvestment Corporation will be
cooperating with that effort. At least 12 NeighborWorks® organizations will participate
in this evaluation that will entail pre- and post-training self-assessments followed up by
interviews with program graduates. These interviews will occur 12 and 18 months after
completion of the program to ascertain the impact of the training on their lives by
documenting changes in their debts, savings and other asset-building activities.

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In addition to this financial education evaluation, Neighborhood Reinvestment is also
planning to achieve the following results by FY 2006:

•   Add 10 more Financial Fitness sites in FY 2006 to expand the reach of financial
    education efforts across the network;

•   Create a new consumer training curriculum for “Refinancing Your Home” that can be
    offered to assist existing homeowners in making smarter choices when considering
    the multitude of options in refinancing their home;

•   Distribute a new consumer training curriculum on “Buying a Manufactured Home” to
    help consumers who are considering buying manufactured homes; and

•   Complete a study on the cost of providing prepurchase counseling to consumers.

B. Support the Center for Foreclosure Solutions
Neighborhood Reinvestment and the NeighborWorks® network are dedicated to
expanding and preserving homeownership opportunities across the country, particularly
for families and individuals with low- to moderate-incomes. Over the past ten years,
there have been dramatic increases in high-risk lending, growing job instability and
excess consumer debt obligations that are all trademarks of susceptibility to foreclosures.
Neighborhood Reinvestment has established the Center for Foreclosure Solutions (CFS)
to research and test homeownership preservation efforts in Chicago and elsewhere.

The Center for Foreclosure Solutions seeks to expand support to initiatives to reduce
foreclosures and its many negative impacts on borrowers and communities. This
initiative is designed to spur a national dialog to develop various solutions and holistic
shifts in consumer behaviors, counseling activities, lending and servicing processes,
especially in the realm of high-risk mortgage lending. Current CFS plans are to focus on
the areas of research, training and facilitation.

Collaborative Approaches to Address Foreclosures
For communities that have identified escalating foreclosures as a critical issue, the first
step is to scan foreclosure data to identify the scope of the problem. An effective second
step is to convene a stakeholders’ meeting designed to introduce the interested parties,
share research, brainstorm critical issues, and if warranted, form partnerships to address
the local problem. Stakeholder participants may include municipalities, insurers, bond
market, loan servicers, nonprofit housing counseling and education providers, lenders and
regulatory agencies.

Lessons Learned in Chicago
In 2000, the Neighborhood Housing Services of Chicago began an exploration into
growing foreclosure problems in its target neighborhoods, threatening to unravel almost
two decades of community development work. As a result of this exploration, the Home
Ownership Preservation Initiative (HOPI) was established. HOPI is an innovative
partnership among financial industry, the city, and the Neighborhood Housing Services

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FY 2006 Budget Justification
(NHS) of Chicago, which seeks solutions to foreclosure and neighborhood
destabilization. In less than a year, HOPI developed several new programs that
successfully prevented almost 500 foreclosures. Some examples of innovative strategies
pioneered through the HOPI partnership include:

•   A citywide “311 hotline” for consumers offering 24-hour consumer counseling

•   New contacts between loan servicing and counseling entities;

•   The development of fraud watch lists to identify unscrupulous companies; and

•   Testing by lenders of a speedier transfer of REO properties to nonprofits to save
    costs and reduce the potential for negative community impact of empty properties.

In FY 2006, Neighborhood Reinvestment will help with research and convene
stakeholder meetings to discuss partnership opportunities in areas with growing
foreclosure problems. Local leadership and guidance are critical to successfully
addressing these problems.

Neighborhood Reinvestment seeks to advance the dialogue regarding the evolution of
mortgage origination, servicing, default counseling and supportive services. Through the
NeighborWorks® Training Institute and other forums, the Corporation can educate city
officials, community-based organizations and lending professionals on the lessons
learned from the HOPI partnership model, including best practices in counseling,
servicing and disposition of foreclosed properties. The Corporation will also facilitate
and disseminate research developed from the HOPI partnership on issues related to
foreclosures trends, loan loss mitigation efforts and other issues.

The goals of the Center for Foreclosure Solutions for FY 2005 and 2006 are to:

•   Develop three research papers documenting mutually beneficial solutions to
    foreclosures stemming from the HOPI partnership in Chicago or documenting
    foreclosure problems or innovative solutions from other regions;

•   Train 100 industry leaders on lessons from HOPI to respond to foreclosures in other

•   Provide technical assistance for five NeighborWorks® organizations to respond to
    local foreclosure issues; and

•   Convene at least three meetings involving leaders from financial institutions, national
    and state regulators, nonprofits and foundations to engage in substantive dialogues on
    solutions to troubled loans.

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FY 2006 Budget Justification
C. Establish the NeighborWorks® Center for Homeownership Education and

Although the value of homeownership education and counseling to homebuyers is
supported by research and is increasingly recognized as a powerful tool to promote
neighborhood revitalization, the quality is uneven and the coverage insufficient. There
are few national certification standards, limited continuing-education requirements for
trainers and counselors, gaps in coverage across the nation, and a lack of quality control
for homeownership education and counseling – ranging from intensive, multiday
curriculum and standards to “sham” counseling programs that lure potential buyers into
predatory loan deals. There is also a dearth of well-trained educators and counselors to
meet the growing national need.

To address these concerns, Neighborhood Reinvestment Corporation, through the
nationally recognized NeighborWorks® Training Institute, has launched the
NeighborWorks® Center for Homeownership Education and Counseling (NCHEC).

The mission of NCHEC is to work with industry partners to train, certify and support
homebuyer educators and housing counselors nationwide, and to:

•   Promote quality standards for homeownership education and housing counseling;

•   Provide expanded training and certification opportunities for existing counselors;

•   Support counselors with tools, information, and continuing education; and

•   Build sustainable support for the homeownership education and counseling industry.

NCHEC aims to increase the number of homeownership educators and counselors trained
and certified through the NeighborWorks® Training Institute from 700 to more than 2,000
per year – indirectly ensuring the education and counseling of several million individuals
and families by 2007. The total number of counselors and educators provided both
certification training and continuing education will increase to more than 3,000 per year.

For more than 15 years, Neighborhood Reinvestment has been providing outstanding
community development training in the country through its NeighborWorks® Training
Institutes (NTIs), which are held four to five times a year in different cities throughout
the U.S. NTIs are held in high esteem by practitioners and partners throughout the
industry because of the quality of the course content as well as the outstanding faculty.
In recent years, Neighborhood Reinvestment has begun taking its NTI courses to local
markets in the form of “place-based trainings” (PBT) conducted in collaboration with
local and regional partners. Currently, Neighborhood Reinvestment provides
approximately 2,000 training certificates a year in more than 20 courses in
homeownership education, counseling, and lending. Through NCHEC, the Corporation
will increase dramatically the number and quality of homeownership counselors and

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counseling provided to potential homebuyers and current homeowners in 2006 and

In the fall of 2004, the Department of Housing and Urban Development awarded
Neighborhood Reinvestment $7.75 million over two years to train and certify HUD-
approved housing counselors around the country through NCHEC. In addition to
expanded homeownership and community-lending training offered at the
NeighborWorks® Training Institutes, NCHEC will partner with other intermediaries,
statewide counseling collaboratives, and NeighborWorks® organizations to offer trainings
in local settings around the country.

In addition to expanding training and certification of homeownership educators and
counselors, Neighborhood Reinvestment intends to provide technical support to
NeighborWorks® organizations and intermediaries to help them expand their own
homeownership education and counseling programs. Collaborating with industry
partners, NCHEC will produce new services and tools to assist organizations in serving
consumers more efficiently and effectively, including enhanced quality controls.
NCHEC will also collect national data on homeownership education and counseling

NCHEC will provide training, tools, and information for both pre- and post-purchase
education and counseling. In addition to the core five-day Homebuyer Education
Methods training course, NCHEC will feature other courses such as “Financial Fitness;”
“Housing Counseling;” “Credit Counseling for Maximum Results;” “Helping
Homeowners Avoid Delinquency and Predatory Lending;” and “Post-Purchase Education
Methods.” Advance courses and continuing education opportunities will be developed to
professionalize the field, and give educators and counselors effective tools to use in their

The following organizations and corporations have formally agreed to collaborate with
NCHEC on this initiative:

        AARP Foundation
        National Council of La Raza
        The National Foundation for Credit Counseling
        The Enterprise Foundation
        National Alliance to End Homelessness
        Housing Partnership Network
        Catholic Charities USA
        Tennessee Housing Development Agency (THDA)
        Texas Department of Housing and Community Affairs
        Arizona Housing Counseling Collaborative (AHCC)
        The Vermont Housing Finance Agency
        The Minnesota Housing Finance Agency
        The Oklahoma Homebuyers Education Association
        The Oklahoma Association of Community Action Agencies

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        Housing and Credit Counseling Inc., Topeka, Kansas
        National Association of Realtors
        Mortgage Insurance Guarantee Corporation

Discussions are also underway with the National Council of State Housing Finance
Agencies, National Association of Real Estate Brokers, the National Consumer Law
Center, State Housing Finance Agencies, and statewide collaboratives throughout the

D. Promote the Success Measures Data System

The newest addition to Neighborhood Reinvestment’s programs and services is Success
Measures, a participatory, outcome-based evaluation and set of technological and
technical assistance tools for the community development field.

Success Measures was initiated in 1997 by more than 300 grassroots practitioners
through the Development Leadership Network, who framed the initial concepts,
developed a set of 44 outcome indicators to measure the results of community
development activities and captured this work in the Success Measures Guidebook.
Through a partnership between Development Leadership Network and McAuley Institute
beginning in 1999, the Success Measures approach was tested in the field and
substantially expanded. McAuley Institute added the Success Measures Data System
(SMDS), an innovative web-based tool that streamlines and standardizes the evaluation
process and provides a set of data collection tools paired with the Success Measures
indicators. McAuley Institute also built support for the data system among funders and
intermediaries, added test users and developed a comprehensive business plan to guide
the launch of the Success Measures Data System.

Recognizing the important innovation that Success Measures presents for the field, its
potential to build the evaluation capacity of community-based organizations and its direct
applicability for the NeighborWorks® network, Neighborhood Reinvestment Corporation
acquired the Success Measures Data System and related programs shortly after the
McAuley Institute decided to cease operations.

Grassroots organizations use Success Measures to plan, implement and improve services
that promote change and help people living in low-income communities. In keeping with
Neighborhood Reinvestment’s commitment to serve communities with a concentration of
low- and moderate-income people by supporting resident-led organizations, Success
Measures is predicated on the participation of those who will be most affected by the
evaluation – community residents – who might otherwise be excluded from critical
decisions that affect them.

Success Measures promotes and tracks changes for individuals, families and communities
benefiting from community-based organization programs and services with indicators
such as those that measure monthly housing cost and affordability, quality of housing,
local economic impact of homeownership development, the duration of residency, and

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FY 2006 Budget Justification
resident stability. By focusing on these areas, SMDS will reinforce accountability for
outcomes relating to affordable housing and asset building for low- and moderate-income
people and communities as well as special populations.

After years of field testing and prototype development, the SMDS and its related
technical assistance and training programs are ready to be launched to the field of
community development. Neighborhood Reinvestment is uniquely positioned to make
this innovative approach available to both the NeighborWorks® network and the broader
community development field as a way of supporting the emergence of an industry-wide
set of outcome measures.

In FY 2005, approximately 80 community-based organizations (30 NeighborWorks®
organizations and 50 organizations outside of the network) will be in their start-up year of
conducting a Success Measures participatory outcome evaluation using SDMS. With
support from foundations and revenue from other participating intermediaries, sponsors
and individual organizations, Neighborhood Reinvestment will provide tools and services
to support the implementation of Success Measures and SMDS with adequate training,
coaching and technical assistance to safeguard the credibility and integrity of the
evaluation methods and data.

In FY 2006, the Corporation plans to expand the use of Success Measures and SMDS by
both current and new sponsors, intermediaries and individual organizations, with a goal
of 260 new participating organizations. Also in FY 2006, the Corporation will complete
a 15-month pilot with NeighborWorks® organizations using SMDS. Lessons learned
from the pilot will be used to expand use of SMDS by NeighborWorks® organizations as
a primary tool for evaluating and measuring outcomes resulting from their work, beyond
the basic programmatic outputs. Of particular focus will be the use of SMDS to track
outcomes at the community level and in a focused geographic target area.

In addition to Success Measures, Neighborhood Reinvestment is committed to
developing and testing an index of community-development indicators to measure
improvement in distressed neighborhoods served by NeighborWorks® organizations.
This index will combine factors focusing on physical, social and economic dimensions of
the community, such as resident and stakeholder perception of the neighborhood to gauge
the first-hand perception of improvement and confidence; HMDA data on mortgage
lending to gauge investment and homeownership; and crime data to gauge community
safety and/or security. The development of this index has been encouraged by OMB
through its Program Assessment Rating Tool (PART) process.

E. Enhance Board Oversight Skills of Local Boards of Directors

In FY 2004, Neighborhood Reinvestment launched a series of new initiatives to
strengthen the board leadership of NeighborWorks® organizations and other nonprofits
working nationwide. Neighborhood Reinvestment has expanded its course offerings on
board oversight responsibilities and skills at NeighborWorks® Training Institutes and at
local venues around the country – launching two new courses in collaboration with

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FY 2006 Budget Justification
BoardSource, “The Fundamentals of Board Oversight and Governance” and “Financial
Management and Oversight for Board Treasurers.” In addition, two new “Advanced
Practitioner” training programs were offered in FY 2004, “Creating a Culture of
Evaluation” and “Organizational Leadership Succession Planning for Board Chairs and
Executive Directors.” A symposium entitled “Unleash the Power of Your Board:
Rejuvenate and Realize Your Board’s Optimal Potential” will be conducted at the
December 2005 NeighborWorks® Training Institute, engaging more than 150 experts and
practitioners from around the country in discussions about cutting-edge practices and
problem solving. Finally, Neighborhood Reinvestment management consultants who
directly support NeighborWorks® organizations and their boards are being trained in the
many new tools and approaches featured in all of these training programs.

In FY 2006, Neighborhood Reinvestment will expand these efforts by offering these and
other trainings and workshops, as well as board-related coaching and consulting, locally
with boards and executive directors of NeighborWorks® organizations.

F. Leverage Strategic Partners and Resources

Historically, the success of the NeighborWorks® System has far exceeded its visibility.
Realizing that the low recognition of the NeighborWorks® System hinders progress in
attracting additional investment and other resources to communities in need,
Neighborhood Reinvestment has made it a key corporate strategic goal to elevate the
visibility and value of the NeighborWorks® System. The principal goal of this visibility
effort is to increase private-sector funding and involvement – from corporations,
foundations and the community residents themselves – so that more individuals and
communities may be served.

Visibility strategies that will be continued and expanded in FY 2006 focus on
strengthening and promoting the NeighborWorks® brand, the key shared identifier of the
NeighborWorks® System. The NeighborWorks® brand, with its positive attributes and
reputation, is an asset, a key resource that can be leveraged for the benefit of network
organizations and the communities they serve. Gains in awareness and understanding of
the brand among key audiences will be measured against research benchmarks set in FY

In FY 2005, Neighborhood Reinvestment is taking a major step forward in enhancing
visibility of NeighborWorks® by adopting the name “NeighborWorks® America” as its
public trade name. A resolution of the Board of Directors directing the Corporation to
make this change passed unanimously on September 20, 2004. Further information about
this important effort can be found in Appendix A2.

Activities in 2006 related to print and electronic publications, special events and
conferences, national partnership building, and media outreach will increase visibility of
the NeighborWorks® brand by promoting the leadership and accomplishments of the
Corporation and NeighborWorks® organizations.

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FY 2006 Budget Justification
In order to ensure that local NeighborWorks® organizations are well positioned to take
advantage of increased NeighborWorks® visibility, Neighborhood Reinvestment is
providing training and technical assistance in the use of the brand at the local level, and
in fundraising techniques. In addition, the shared responsibility for promoting and
protecting the NeighborWorks® brand is being highlighted through new provisions in the
NeighborWorks® charter agreement.

G. Capitalize the Secondary Market

An essential ingredient in creating the volume of new homebuyers that has characterized
the Campaign for Home Ownership is the capacity of Neighborhood Housing Services of
America (NHSA), the secondary market member of the NeighborWorks® System, to
purchase affordable loans made for down-payment and closing-cost assistance and for
home rehabilitation and repair. Many working families who become first-time
homeowners are capable of paying monthly mortgage costs but need assistance with
down payments or closing costs or with home improvements. NHSA’s capacity to
purchase these loans, made by the local NeighborWorks® organizations at affordable
rates and terms, ensures liquidity at the local level and sustains the high volume of
activity that has made the Campaign so successful. Neighborhood Reinvestment will
continue to support NHSA by providing reserves and resources that leverage the millions
of dollars in social investment that make this secondary market viable.

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FY 2006 Budget Justification

With a $118 million FY 2006 federal appropriation, the NeighborWorks® System will:

•   Provide affordable housing and counseling to more than 170,000 individuals or
    families living in 2,700 communities served by more than 230 organizations that
    comprise the NeighborWorks® network;

•   Generate $19.60 in other investment for every dollar appropriated to Neighborhood
    Reinvestment, for a total reinvestment of over $2.3 billion in American communities;

•   Assess the organizational health of each organization in the NeighborWorks®

•   Provide 225,000 training contact hours and award over 7,000 training certificates in
    community development and housing; homeownership and community lending;
    home-ownership education and counseling; construction, production, real estate and
    housing management; nonprofit management and leadership; and economic
    development, revitalization and community building to practitioners throughout the

•   Secure and expend $75 million in social investments in support of affordable housing

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FY 2006 Budget Justification

Three interrelated components of the NeighborWorks® System fulfill a coordinated
mission to promote locally directed community revitalization and expand affordable-
housing opportunities in communities across the nation. They are:

            Neighborhood Reinvestment Corporation;
            The NeighborWorks® network; and
            Neighborhood Housing Services of America.

For nearly 30 years, the NeighborWorks® System has proven to be an increasingly
effective and efficient vehicle for leveraging significant private-sector resources in
support of community revitalization and affordable-housing efforts. The
NeighborWorks® System relies on public-private partnerships, the leveraging of federal
funding, and flexible revolving loan funds to achieve its results. Innovations that are
generated in response to locally identified needs are a hallmark of the NeighborWorks®

H. Neighborhood Reinvestment Corporation
Neighborhood Reinvestment evolved from a 1972 effort by the Federal Home Loan Bank
Board to increase thrift-industry lending in declining neighborhoods. The Neighborhood
Reinvestment Corporation, a public nonprofit organization, was chartered by Congress in
the Housing and Community Development Amendments of 1978 (Public Law 95-557).
Neighborhood Reinvestment’s involvement with local housing and community
development organizations supports residents, businesses and local governments in their
efforts to revitalize their communities.

Neighborhood Reinvestment:

•     Assists existing NeighborWorks® organizations to expand their geographic and
      programmatic scope and helps other organizations to become chartered members of
      the NeighborWorks® network through extensive educational and partnership-
      building efforts that involve residents, business leaders and government

•     Supports NeighborWorks® organizations with funding for capital projects and
      operations to enable them to create and build their own community-revitalization
      initiatives from a solid asset base;

•     Provides a high degree of managerial advice and technical assistance to
      NeighborWorks® members to better reach underserved communities;

•     Assesses NeighborWorks® organizations in terms of their capacity to successfully
      manage their resources and programmatic risks; and

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FY 2006 Budget Justification
•     Offers training throughout the United States for individuals interested in affordable
      housing and community revitalization, particularly private- and public-sector
      practitioners and community leaders.

I. The NeighborWorks® Network
In the early 1970s, Neighborhood Reinvestment founded the NeighborWorks® network, a
collaborative group of community-based nonprofits that has evolved from a few
organizations to more than 230 members active in more than 2,700 communities across
the country today. NeighborWorks® organizations operate in our nation’s largest cities,
suburban neighborhoods and rural areas across 49 states as well as Puerto Rico and the
District of Columbia. Regardless of their target communities, NeighborWorks®
organizations function as partnerships of local residents, lenders and other business
leaders, and representatives from local government. Members of the NeighborWorks®
network produce creative strategies, collaborate on best practices, and develop flexible
financing mechanisms.

Each organization is responsible for setting its own strategies, raising funds, and
delivering services. Most NeighborWorks® organizations provide homebuyer counseling,
rehabilitation monitoring, and targeted lending services that complement conventional
lending activity. A great majority of NeighborWorks® organizations also operate a
revolving loan fund to meet community credit needs such as gap financing for home-
purchase loans, second mortgages for rehabilitation, small-business loans and acquisition
and development of residential and commercial real estate. The NeighborWorks®
network is the only national nonprofit network with extensive expertise in designing,
originating and servicing small unconventional loans to lower-income families. The rates
and terms are tailored to what borrowers can afford. Clients often require counseling and
personalized assistance; however, this extra effort pays off by creating new opportunities
for first-time homebuyers and by permitting existing homeowners to make affordable

J. Neighborhood Housing Services of America (NHSA)
Neighborhood Housing Services of America works in partnership with the Neighborhood
Reinvestment Corporation to meet special secondary market needs of NeighborWorks®
organizations and their clients. The primary mission of NHSA is to operate a specialized
secondary market created to replenish the revolving loan funds and capital pools of local
NeighborWorks® organizations.

With administrative and capital support provided by Neighborhood Reinvestment, NHSA
purchases community development loans at par (at face value, regardless of the interest
rate of the loans) allowing NeighborWorks® organizations to originate loans with interest
rates and terms based on the borrowers’ ability to repay. NHSA also serves
NeighborWorks® organizations when credit needs cannot be met conventionally or
locally. NHSA’s loan purchases provide a stream of capital back into NeighborWorks®
organizations’ revolving loan funds and capital pools to meet additional needs within
their target neighborhoods.

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FY 2006 Budget Justification
As of September 30, 2004, NHSA had purchased more than $653 million in loans from
local NeighborWorks® organizations and their local lending partners, thereby
significantly leveraging Neighborhood Reinvestment grant dollars. NHSA secures
private-sector capital from a pool of socially responsive national institutional investors
that include insurance companies, financial institutions, foundations and pension funds.
Proceeds from these investments are used to purchase NeighborWorks® loans.

A key ingredient in any successful neighborhood revitalization strategy is assuring that
all qualified residents, regardless of income or previous credit history, have access to
flexible and affordable loan products for housing rehabilitation and, as appropriate,
opportunities that can lead to home purchase. While most Americans can qualify for
conventional financing from local financial institutions, many residents living in
distressed communities or on limited incomes may not qualify. Instead, they are served
by NeighborWorks® organizations’ revolving loan funds and capital pools.

NHSA has traditionally purchased loans from NeighborWorks® revolving loan funds at
par. This puts money back into revolving loan funds for further use in the community.
Revolving loan fund loans are structured with affordable rates and terms to fit borrowers
of limited incomes. To a degree, the loans NHSA purchases from NeighborWorks®
organizations perform well because the payments are affordable, but a critical additional
factor is that NeighborWorks® organizations provide ongoing credit and post-purchase
counseling. NHSA also carries out many activities internally to assure performance on
the loans, such as withdrawal of delinquent loans from investor pools and replacing them
with performing loans while NHSA resolves the delinquency, including development of
workout programs with the delinquent borrower. Despite steady increases in volume, the
90-day delinquency and/or substitution rate has remained under 2.5 percent, with an
emphasis on ways to work out loans so that borrowers can keep their homes. NHSA has
also met all obligations to its investors; private investors have experienced no losses or

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FY 2006 Budget Justification
The NeighborWorks® System is the only coordinated effort of its type in the nation.

It is unique in that it:

•   Provides national access to a delivery system built on locally directed, community-
    based partnerships;

•   Fosters local and regional leveraging of critical government resources;

•   Serves as a laboratory for developing, testing and documenting creative solutions to
    problems that impede affordable-housing production and neighborhood revitalization;

•   Sets stringent chartering standards and requirements for participating in the network;

•   Maintains high standards for receiving benefits of membership through a
    comprehensive system of ongoing organizational assessment;

•   Facilitates an environment conducive for benchmarking and disseminating best
    practices in the field; and

•   Creates a controlled environment for testing new products and approaches in the
    community development area (e.g., Full Cycle Lending and Housing Choice Voucher
    Homeownership Program).

The illustrations on the next two pages provide an overview of the growth of the
NeighborWorks® System since 1990, and the ways in which the NeighborWorks® System
acts as a holistic vehicle to deliver significant results.

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                         Growth of the NeighborWorks System [105 KB]

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FY 2006 Budget Justification
                  Graphic: FY 2004 Sources, Uses, and Outcomes [86.3 KB]

Neighborhood Reinvestment Corporation   26                     February 2005
FY 2006 Budget Justification

In order to facilitate, encourage and promote the NeighborWorks® network of excellence,
the Neighborhood Reinvestment Corporation provides guidance and assistance in the
following areas:

K. Financial Support
Equity capital grants are a critically important financing vehicle that Neighborhood
Reinvestment provides to NeighborWorks® organizations for revolving loan funds that
support real-estate development and lending. NeighborWorks® organizations use these
grants to provide the equity and gap financing necessary to make loans for home
purchase, property rehabilitation and small business loans.

Eligible activities also include capital costs associated with the acquisition and
development of residential and commercial real estate for long-term ownership by a
NeighborWorks® organization, including costs from contracted agents such as architects,
contractors and brokers.

Neighborhood Reinvestment also provides expendable grants to NeighborWorks®
organizations to strengthen and increase their organizational capacity to revitalize their
communities. Grants are awarded for activities that address the full range of
organizational management and development issues faced by nonprofit housing and
community development organizations. Particular emphasis is placed on activities
crucial to increasing production, generating sustained community impact and ensuring
the long-term success of the organization.

By the end of FY 2007, Neighborhood Reinvestment intends to extend a new grant-
making process from a pilot involving 97 NeighborWorks® organizations to every
organization in the network. Using organizational underwriting, the Corporation intends
to build overall organizational capacity of the grantee, rather than providing assistance
with discrete projects. This process will promote the attainment of clearly stipulated,
measurable outcomes while reducing duplicative submission of data and reports. This
grant-making approach is well aligned with the nature of Neighborhood Reinvestment’s
ongoing “partnership” relationship with chartered members.

L. Technical Assistance
In tandem with financial assistance, Neighborhood Reinvestment provides access to a
wide range of technical assistance. NeighborWorks® organizations request technical
assistance in any programmatic, organizational or management area of strategic
importance to their organization. Neighborhood Reinvestment responds with a team of
housing and community-development professionals familiar with each organization’s
structure and mission.

In general, technical assistance is primarily provided in six categories:

•   Organizational development;

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FY 2006 Budget Justification
•   Resource development and marketing;
•   Community revitalization and business planning;
•   Management systems (including technology and financial management);
•   Single-family housing and lending; and
•   Real-estate development and management.

Neighborhood Reinvestment also facilitates and encourages collaborative learning and
peer assistance, one of the most successful methods for providing technical assistance
and promoting rapid learning. Collaborative learning is accomplished efficiently through
initiatives that allow NeighborWorks® organizations to learn directly from each other –
such as the NeighborWorks® Campaign for Home Ownership, the NeighborWorks®
Multifamily Initiative, the NeighborWorks® Rural Initiative, and the NeighborWorks®
Insurance Initiative and its National Insurance Task Force.

M. Organizational Assessment
Neighborhood Reinvestment Corporation is committed to promoting and maintaining a
network of productive, well-managed, nonprofit housing and community-development
corporations that deliver high quality services responsive to local needs and have a
measurable impact on the communities they serve, as part of its responsibility to be a
strong steward of federal funding, to protect the investment of other partners and the
reputation of the NeighborWorks® network as a whole. One of the tools employed in
doing this is a uniform program assessment and audit review system.

The purposes of this system are to:

•   Enhance the performance and productivity of network organizations;
•   Assess the capacity of individual network organizations and the network as a whole
    to assume organizational and financial risks;
•   Determine the organization’s fulfillment of contract and chartering standards;
•   Evaluate the use of federal funding received from Neighborhood Reinvestment;
•   Assess newly developed or potential affiliate organizations’ capacity to meet
    NeighborWorks® network membership standards and performance objectives; and
•   Assist in building the capacity of nonprofit members to function in a highly effective,
    businesslike fashion.

Through a system of continuous monitoring, the risks each NeighborWorks® organization
is facing is assessed through either off-site or on-site program and audit reviews. Off-site
reviews involve the collection and analysis of programmatic and financial data available
about the organization. Quarterly, data in eight risk areas is analyzed. The eight risk
areas are: competency or transition of key personnel; loss of resources or support from
funders; production stability; shift in program direction; poor board and/or partnership
oversight; assets imbalance; economic, regulatory and political environment; and internal
financial and organizational management systems. If a meaningful risk is identified, the
degree to which the organization has the capacity to manage the risk is determined.

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FY 2006 Budget Justification
On-site reviews are conducted under specific circumstances and with measured
regularity. For example, all new applicants for membership are evaluated on site as a
condition of being offered a charter as a NeighborWorks® member. An on-site review
may also be an outcome of an off-site review when substantial risk was discovered or
serious questions were raised.

In addition, the Corporation has codified a comprehensive Organizational Health
Tracking System that encompasses all of the processes involved in monitoring the health
of the NeighborWorks® network and subsequent action steps, if warranted. This system

•   Ongoing data collection and analysis; and,
•   Identification of a “watch list” that includes all member organizations that fall into
    one of the following categories:

        An early alert has been issued indicating concern about significant shortcomings;
        Corrective actions have been identified in a program review (these are monitored
        until corrected);
        Any organization whose charter has been placed in provisional status as a result
        of its immediate lack of responsiveness or the Corporation’s concern about the
        threat to its assets, the organization’s capacity to mitigate these threats and/or its
        ability to return to healthy status;
        Organizational health rankings (each network organization is accorded a rank of
        stable, vulnerable or exemplary based on detailed criteria);
        Resolution and/or asset recovery and/or charter revocation; and
        Quarterly meetings of the officers and senior managers to review all of the above
        information and to request and take appropriate additional action.

N. Training Opportunities and Information
A comprehensive, systematic program of training and informing powerfully augments
on-site technical assistance. The NeighborWorks® Training Institute (NTI) and related
place-based offerings now provides more than 150 courses and reaches more than 6,000
people a year from more than 4,000 communities across America. Participants at the
NeighborWorks® Training Institutes come from all 50 states as well as Puerto Rico and
the District of Columbia.

NeighborWorks® Training Institutes are scheduled four or five times a year at various
locations around the country. Courses are offered in eight tracks: Home Ownership and
Community Lending; Affordable Housing; Community Building and Organizing;
Community Economic Development; Construction and Production Management;
Management and Leadership; and Neighborhood Revitalization and Rural Development.
The Institutes also host symposia on cutting-edge topics involving nationally recognized
experts, special-issue workshops, and peer-to-peer networking opportunities. A typical
NeighborWorks® Training Institute offers 65 to 75 courses to community development
practitioners from around the country. At each NTI, approximately 45 percent of the

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FY 2006 Budget Justification
attendees of the institutes come from organizations within the NeighborWorks® network;
the rest come from other communities and organizations around the country. In just a
few years, NeighborWorks® Training Institutes have doubled, from an average
attendance of 700 participants in 2001 to more than 1,400 participants attending each NTI
in FY 2004.

Building from the strength of the NeighborWorks® Training Institutes, the
NeighborWorks® Advanced Practitioner Program (APP) offers experienced professionals
a series of programs for professional growth and development. One of the most
innovative programs in community-development training, the APP brings practitioners
together with the explicit purpose of implementing strategies to reshape the future of the
housing and community-development field and requires them to define and achieve
measurable performance outcomes for themselves, their organizations and the field.
These training programs are developed with and offered with esteemed partners such as
the Harvard University Hauser Center for Nonprofit Management and the University of
Maryland James McGregor Burns Center for Leadership.

O. Expansions, Mergers and New Affiliates
In many underserved areas, the most effective growth strategy is to expand the reach
and/or programmatic services of an existing network member or to facilitate a merger of
two organizations to create one powerful organization with greater impact and efficiency.
Neither of these approaches results in the addition of new organizations to the
NeighborWorks® network, yet both can result in more productive outcomes, more
efficient use of resources and more responsive service delivery.

Mergers of local housing and community-development organizations have become
increasingly common. In many instances, the combined efforts resulting from mergers
have achieved greater impact at equal or less cost. In a number of instances, these
mergers have involved urban and suburban locations. Neighborhood Reinvestment’s
ability to facilitate and support this kind of effort is unique in the housing and
community-development field.

Neighborhood Reinvestment receives a far greater number of requests for new affiliations
than it can hope to satisfy responsibly. To prioritize requests from new applicants, the
Corporation seeks those environments where their resources and assistance are likely to
add the greatest value to local efforts and produce the most impact. Through a careful
affiliation process, Neighborhood Reinvestment works with interested existing
community-based organizations to ensure that before any organization is chartered as a
NeighborWorks® entity, it is sound and productive; led by a board of directors reflective
of the community it serves; and committed to a mission with goals, values, programs and
accomplishments compatible with the focus and priorities of the NeighborWorks®

Through the affiliation process, Neighborhood Reinvestment enables an organization to
increase its capacity and realize a greater return on the investment of time and money
being made by others.

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FY 2006 Budget Justification
Upon occasion, Neighborhood Reinvestment also works with local residents, business
leaders and government representatives to develop a new community-based nonprofit
organization to serve a community that is in need of such an organization. This involves
a different type of effort, emphasis and technical assistance than the affiliation process,
and the time required can increase significantly. Developing a new NeighborWorks®
organization requires extensive educational and partnership-building efforts, usually over
a period of 12 to 18 months.

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FY 2006 Budget Justification

Nearly 30 years ago, the Neighborhood Reinvestment Corporation was created because
there was a noticeable void in the nation’s lending system; namely, there were far too few
opportunities for families of modest means to obtain mortgages and rehabilitation loans
from the private lending market. Mainstream financial institutions were not prepared to
change traditional underwriting criteria. As a result of this and other circumstances,
working families were often shut out of the “American Dream” of accruing wealth and
gaining stability through home ownership. When Congress created Neighborhood
Reinvestment in 1978, it clearly iterated the Corporation’s mission and role in the
marketplace. Title VI of the Housing and Community Development Amendments of
1978, P.L. 95-557 states that the principal purpose of the Corporation is “to revitalize
older urban neighborhoods by mobilizing public, private, and community resources at the
neighborhood level.”

Although the larger environment in which the NeighborWorks® System operates has
changed dramatically since that time, the Corporation continues to play a crucial role as a
bridge between mainstream financial institutions and lower-income families. The
Neighborhood Reinvestment Corporation and more than 230 NeighborWorks® affiliates
have created a NeighborWorks® network of excellence that continues to respond to
America's communities in need while championing home-ownership opportunities for all
Americans. Neighborhood Reinvestment and the NeighborWorks® network operate in
underserved communities that are home to a variety of people who lack access to decent
affordable housing, financial products, services, and the kind of equity investment that
sustains communities. With support from Neighborhood Reinvestment, the following
locally controlled NeighborWorks® efforts respond to America’s communities in need.

P. Housing Choice Voucher Homeownership Program
As of June 2004, 63 chartered organizations of the NeighborWorks® network had forged
partnerships with 75 local public housing authorities (PHAs) to develop and implement
comprehensive local and regional Housing Choice Voucher Homeownership programs,
formerly known as the Section 8 to Homeownership program. These partnerships are
built upon the NeighborWorks® network’s solid experience in pre- and post-purchase
counseling, innovative mortgage financing and in leveraging public resources with
private investment.

In fiscal years 2001, 2002 and 2003, Congressional set-asides have helped Neighborhood
Reinvestment Corporation test the effectiveness of the Housing Choice Voucher
Homeownership Program among other affordable home-ownership strategies. In FY
2004, Neighborhood Reinvestment leveraged sales of more than $1.5 million of Housing
Choice Voucher Homeownership loans from NeighborWorks® organizations to
Neighborhood Housing Services of America in order recapitalize their Revolving Loan

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FY 2006 Budget Justification
In addition to national funding, the Neighborhood Reinvestment Corporation is assisting
local Section 8 administrators and NeighborWorks® organizations to develop Housing
Choice Voucher Homeownership Programs through national and regional training,
technical assistance, ongoing evaluation and publication of lessons learned. These
trainings have been particularly well received, as noted by one local housing
administrator upon completion of training in Jackson, Mississippi:

    “The Neighborhood Reinvestment Corporation has been an invaluable
    resource for Public Housing Authorities (PHAs) in our state. There was
    a lot of misconception about what residents could really afford to buy
    and how PHAs could partner with other organization. Marietta
    Rodriguez (Neighborhood Reinvestment’s lead staff person devoted to
    this effort) was able to dispel many of these myths and help the PHAs
    understand how they can create successful homeowners. She continues
    to provide technical assistance to our PHAs. We are looking forward to
    a long lasting technical assistance relationship between Neighborhood
    Reinvestment Corporation and Public Housing in the state of
    Mississippi. We have a housing shortage crisis that is compounded by
    the fact that we have a great deal of working poor. The Section 8
    Housing Choice Voucher program is one of the few tools that can help
    families obtain the ‘American Dream’ of homeownership and support
    President Bush's goals of increasing minority homeownership.” Holly
    Bellino, Coordinator of Public Housing, U.S. Department of Housing
    and Urban Development, Office of Public Housing in Jackson,
With support from the U.S. Department of Housing and Urban Development,
Neighborhood Reinvestment has hosted numerous training sessions at its
NeighborWorks® Training Institutes and other venues to help build capacity in the
Housing Choice Voucher Homeownership Program. More than 2,570 participants from
local Public Housing Authorities, local and state government agencies, nonprofits,
national and regional intermediaries and elsewhere have attended these trainings.

Through June 2004, almost 3,000 Section 8 households have completed homeownership
education training through local NeighborWorks® organizations and 555 have purchased
homes through this program.

While the NeighborWorks® network has made significant headway with the Housing
Choice Voucher Homeownership Program, there is still much to learn. Neighborhood
Reinvestment has hired Abt Associates, a nationally known research organization, to
provide a third-party evaluation team to help track and analyze the factors for long-term
success. First indications suggest such factors for success include:

•   Strong collaboration among all partners (PHA, nonprofit and lenders) committed to
    the effort;
•   NeighborWorks® organizations to serve as a bridge between the public and private
    sector lenders;

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FY 2006 Budget Justification
•   Comprehensive counseling (including pre-purchase and post-purchase in groups and
•   Cooperative marketing and outreach among partners; and
•   Use of alternative financing sources (Housing Finance Agencies, USDA-Rural
    Development and small portfolio bank products).

In addition, the research has documented several program challenges:

•   Limited opportunities to recover administrative and counseling fees;
•   Scarcity of subordinate mortgage capital for this capital-intensive effort;
•   Few national lenders are positioned to manage multiple-income streams;
•   Strong post-purchase programs are essential but can be expensive and time-
    consuming; and
•   Recent job loss and economic downturns have made many program participants
    reluctant to purchase.

In FY 2006, the Corporation will continue to offer information, training and support to
NeighborWorks® organizations, public housing authorities and other nonprofits on how
to develop and implement a local Section 8 to homeownership partnership and program.

Q. Multifamily Initiative
The NeighborWorks® Multifamily Initiative meets the critical need for affordable rental
homes for working families through a three-pronged strategy of:

•   Asset management training, consultation and performance reporting that creates
    excellence in portfolio management;

•   Ongoing development and preservation, through grant support and the development
    lending of Neighborhood Capital Corporation; and,

•   Personal and community asset building through learning centers and resident

A major focus of the Multifamily Initiative has been on strengthening aging property
portfolios that may be suffering a weakness in cash flow. As the affordable properties
age, they generate less revenue, resulting in cash flow shortfalls. To manage this
inevitable challenge, the Multifamily Initiative provides consultation and grants.
Consultation analyzes the degree to which cash flows can be increased through
operational improvements, and explores creative means to restructure financing, with an
eye to improving cash flow across the entire portfolio. This program, known as the
Portfolio Strengthening program, has demonstrated several key lessons:

•   Soft financing (typically loans from other federal sources) on successful properties
    can be paid in full, thus releasing cash flows that can be used to fund reserves across
    the portfolio;

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FY 2006 Budget Justification
•   The development of strong asset-management committees at the board level, which
    can more closely observe “watch list” properties as well as cash flows and capital
    needs, results in improved oversight and performance; and

•   Tightened disciplines in occupancy management (particularly the management of
    leasing, turnover and days vacant) can have remarkable impact on portfolio

Neighborhood Reinvestment promotes more opportunities for affordable rental homes as
well. In 2004, the Corporation was able to use the special set-aside of $5 million for
multifamily housing to advance five objectives to creatively advance the quality of mixed
income rental homes:

•   Continued production of mixed income rental homes, which include extremely
    low-income (ELI) households under 30 percent average median income (about
    $15,000). This includes the funding of 16 properties that provide more than 1,000
    apartment homes, of which 114 will serve people with annual incomes at or below
    $15,000. This grant program, which offers up to $40,000 in subsidy per ELI unit,
    continues to demonstrate that a relatively incremental increase in subsidy can result in
    5 to10 percent of units in a property being affordable to extremely low-income
    families. By targeting the deeper subsidy to the ELI units, a grant of $100,000 to
    $400,000 can make a dramatic difference to the affordability of the property, and
    avoids concentrating poverty. This demonstration illustrates the advantages of
    enabling states to use their housing dollars in a more flexible manner to similarly
    reach these ELI households in mixed-income settings through subsidy.

•   Feasibility assessment of an insurance risk management strategy to
    simultaneously lower rates and utilize the NeighborWorks® Insurance Alliance to
    increase education of owners on risk management and loss prevention. These
    strategies are especially important because the loss histories of nonprofit-housing
    providers have proven to be significantly lower than the industry average. However,
    the insurance industry views “low-income housing” as a higher risk, resulting in
    hundreds of dollars per year per household in inflated insurance expenses that are
    passed through to America’s lower-income working families in monthly rent

•   Growth of the Learning Center Consortium to 14 members. Still in the pilot stage,
    the Learning Center Consortium has advanced the following service outcomes:

            To support the increase of personal assets of residents (preschool aged
            children’s school-readiness; children’s and teen’s success in school; teens’
            and adults’ employment options; family savings; home-buyer readiness; civic
            leadership; neighborhood security);
            To support property efficiency (increased occupancy and collections;
            decreased turnover and maintenance and/or security expenses); and

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FY 2006 Budget Justification
            To support the location of affordable rental properties in neighborhoods
            that are not low-income (providing both a neighborhood learning resource
            and promoting a culture of opportunity and success consistent with the
            surrounding neighborhood).

    These 14 members are currently providing learning centers at 130 properties serving
    over 13,000 households.

•   Continued growth of Neighborhood Capital Corporation (NCC), which supports
    its members’ development of more than 3,000 rental homes for low- and moderate-
    income residents with more than $9.2 million in financing to launch these projects.
    The loan volume in 2004 exceeded the volume for the prior three years combined, as
    a result of growing capital investment in NCC.

•   Advancement of awareness about the message of affordable housing through a
    300-person symposium, providing a thorough review of research on public opinion
    and case studies of successful affordable-housing campaigns.

R. Supporting Rural Efforts
During FY 2006, direct investments by NeighborWorks® organizations serving low-,
very low- and moderate-income residents in rural communities across America are again
expected to surpass $500 million. At this rate of leveraged direct investments,
Neighborhood Reinvestment expects to achieve the benchmark goal of providing $1
billion into underserved rural markets over the two-year period ending December 31,
2005. The Corporation will continue to support the needs of NeighborWorks®
organizations serving rural populations (74 as of December 2004) as well as to pursue
innovative strategies to add value in underserved rural areas. The Corporation expects to
implement a plan for consolidating development capital. This consolidation will increase
the flow of flexible development capital to the full spectrum of lower-income markets
served by the NeighborWorks® network. The Corporation also anticipates at least one
pilot expansion into a perennially underserved rural region not currently being served by
a chartered NeighborWorks® organization.

Guided by a national steering committee of rural NeighborWorks® practitioners who
have identified “comprehensive rural community development” as their overarching goal,
the NeighborWorks® Rural Initiative will build upon its solid foundation in affordable
housing programs and services with new strategies to stimulate and strengthen rural
economies. Job creation and retention remain particularly critical benchmarks for
evaluating rural revitalization efforts, and Neighborhood Reinvestment will continue to
incrementally increase its levels of support for a variety of community economic
development activities undertaken by rural NeighborWorks® organizations. In FY 2005
the Corporation will identify lines of business unique to NeighborWorks® organizations
serving rural markets. During FY 2006, the Corporation expects to highlight these
activities – such as the planning and implementation of rural infrastructure – and to
implement a strategy of specialized technical assistance, training, and leveraged

Neighborhood Reinvestment Corporation      36                            February 2005
FY 2006 Budget Justification
Since 1994, Neighborhood Reinvestment has supported a network-related1 capital
corporation, RNA Community Builders, which is also recognized by the U.S. Treasury as
a Certified Development Financial Institution (CDFI). As of December 2004,
Neighborhood Reinvestment had provided nearly 50 percent of RNA’s total assets of
$2.9 million and 100 percent of RNA’s permanent equity capital. As the capital arm of
the NeighborWorks® Rural Initiative, RNA offers flexible project development loans to
rural NeighborWorks® organizations within an innovative peer-lending model. With 35
member organizations serving more than 450 rural counties in 27 states, RNA provides
low-cost gap and bridge financing for a wide variety of community-development projects
including economic development.

In calendar year 2004, RNA made five loans totaling $1,127,000 for projects in five
states, project-development capital that will leverage more than $16 million in total direct
investments. Here are examples of this highly leveraged impact:
• A $285,000 loan in the San Luis Valley of Colorado will help to create 24 units of
    Self-Help housing with a total project investment of $2.4 million; and,
• A $300,000 loan in eastern Ohio will start a housing development with a total
    projected cost of $6,374,000 resulting in 40 single-family homes for low-income

    100% of RNA’s members are NeighborWorks® organizations serving low income rural populations.

Neighborhood Reinvestment Corporation                  37                                   February 2005
FY 2006 Budget Justification


Because funds generated from a wide variety of government agencies, corporations and
foundations come with specific restrictions set by the funder, and Neighborhood
Reinvestment does not control the timing of the receipt and recognition of this revenue,
the FY 2006 Justification focuses on appropriated and other related core revenue (such as
registration fees from NeighborWorks® Training Institutes and interest earnings) which
comprise approximately 90 percent of total revenues.

Supplemental budget schedules provide information on the actual results of funding from
government agencies, corporations and foundations in FY 2004, along with FY 2005
commitments through December 2004. Information on the Corporation’s strategic
fundraising goals and initiatives can be found in the “Major Functions” section, under
“Training and Informing” (section VIII.W). In FY 2005, these goals include the
generation of $3 million in new cash or in-kind support for network activities and
organizations, and to secure at least two new commitments in excess of $500,000 each
from new partners to the network.

In FY 2006, revenue available to fund core activities is expected to increase by two
percent, with a corresponding increase of two percent in operating expenses and grants.
The anticipated increase in the federal appropriation and slight increase in training
registration fees (due to higher rates and more participants) will be offset by a reduction
in restricted and unrestricted funds carried-forward from the prior fiscal year.

Anticipated double-digit increases in health insurance premiums and a 3.5 percent pool
for merit increases to base salaries will require a $1.7 million increase in the
compensation budget in FY 2006. These costs will be partially offset by a reduction in
the number of full-time equivalent (FTEs) staff which will decrease from 258 to 256.
This will result in a somewhat lower rate of growth in compensation costs (6.8 percent)
than experienced in recent years (8 percent).

Capacity grants will increase by 7 percent, in response to the growing needs for flexible
funding within the NeighborWorks® network as a result of the organizational
underwriting approach to grant-making and other environmental factors.

Due in part to the completion of the current phase of the Nstep software development and
deployment effort and the timing of one training institute in relation to the fiscal year, the
FY 2006 budgets for conferences, workshops and professional services is projected to
decrease by 10 percent from FY 2005 spending levels. Containing costs to this degree, in
order to afford an increase in capacity building grants, will require curtailment of other
contracted professional services across the Corporation.

The next few pages present the following budget information:

Neighborhood Reinvestment Corporation        38                              February 2005
FY 2006 Budget Justification
Appropriated Funds and Other Core Revenue:

    •   Sources and Uses of Funds:
           FY 2004 Actual – FY 2005 Plan – FY 2006 Justification
               With percent of each category compared to the total

    •   Sources and Uses of Funds:
           FY 2004 Actual – FY 2005 Plan – FY 2006 Justification
               With percent of change by fiscal year

    •   Activities and Output Measures

    •   FY 2006 and FY 2005 Budgets by Program Function

Supplemental Schedules:

    •   Government Agencies, Corporations and Foundations: FY 2004 – FY 2005
    •   FY 2004 Actual by Program Function: All Sources, Audited (Draft)
    •   Sources and Uses of Funds: All Sources, FY 1997 through FY 2004

Neighborhood Reinvestment Corporation     39                         February 2005
FY 2006 Budget Justification
Chart: Sources and Uses of Funds with Percentage by Category, FY 2003 - FY 2004 - FY
ntbyCategory.pdf [PDF, 16 KB]

Neighborhood Reinvestment Corporation   40                          February 2005
FY 2006 Budget Justification
Chart: Sources and Uses of Funds with Percent of Change, FY 2003 - FY 2004 - FY 2005
04PercentChange.pdf -- [PDF, 16KB]

Neighborhood Reinvestment Corporation   41                          February 2005
FY 2006 Budget Justification
Chart: Activities and Output Measures, FY 2003- FY 2004 - FY 2005 [PDF, 16KB]

Neighborhood Reinvestment Corporation   42                          February 2005
FY 2006 Budget Justification
Footnotes to Activities and Output Measures
[PDF, 9 KB]

Neighborhood Reinvestment Corporation         43                    February 2005
FY 2006 Budget Justification
FY 2006 Justification by Program Function
ionFY2006JUST.xls [PDF, 14KB]

Neighborhood Reinvestment Corporation       44                  February 2005
FY 2006 Budget Justification
FY 2005 Operating Plan by Program Function
ionFY2005.xls [PDF, 14KB]

Neighborhood Reinvestment Corporation   45                     February 2005
FY 2006 Budget Justification
FY 2004 Sources and Uses of Funds: Government Agencies, Corporations, and
GovAgencies.pdf [PDF, 12 KB]

Neighborhood Reinvestment Corporation   46                         February 2005
FY 2006 Budget Justification
Statement of Functional Expenses for the Year Ending September 30, 2004
alUses.pdf [PDF, 26.5 KB]

Neighborhood Reinvestment Corporation    47                          February 2005
FY 2006 Budget Justification
                    Sources and Uses of Funds: Fiscal Years 1996-2005 1996_2005.pdf

Neighborhood Reinvestment Corporation      48                           February 2005
FY 2006 Budget Justification

This section includes an overview of Neighborhood Reinvestment’s strategic plan,
followed by a budget presentation reflecting appropriated funds and other core revenue
for each of Neighborhood Reinvestment’s major functional activities.

        S.   Neighborhood Reinvestment Corporation’s Strategic Plan
        T.   Capacity Building
        U.   Preserving Affordable Housing and Equity Capital
        V.   Organizational Assessment
        W.   Training and Informing
        X.   Secondary Market
        Y.   Administration in Washington, D.C.

For each of these functions, the following information is included:

             •   FY 2006 Goals and Methods
             •   Summary of FY 2006 Budget Justification
             •   FY 2006 Justification compared to FY 2005 Estimate
             •   FY 2005 Goals
             •   FY 2004 Results

Neighborhood Reinvestment Corporation       49                          February 2005
FY 2006 Budget Justification
S. Neighborhood Reinvestment Corporation’s Strategic Plan

In 2001 the Neighborhood Reinvestment Corporation, with the encouragement of its
Board of Directors and under the leadership of its executive director at that time, Ellen
Lazar, undertook a comprehensive strategic-planning process. While this plan was
intended to guide the development of work plans and activities over the next few years, it
was not static. Neighborhood Reinvestment regularly monitors its progress toward the
goals, notes changes within the environment, and makes adjustments to ensure that the
plan remains vibrant and relevant.

Using an intensive and participatory process, the Neighborhood Reinvestment
Corporation revisited its mission, vision and values; commissioned an extensive
environmental scan; performed an assessment of its strengths, weaknesses, opportunities
and threats; and interviewed and surveyed its staff, customers, stakeholders, partners and
sponsors. The plan articulates the Neighborhood Reinvestment Corporation’s vision,
values, core business areas, and strategic directions. The strategic plan commits
Neighborhood Reinvestment to:

•   Increase the capacity of NeighborWorks® organizations to help underserved
    communities and populations meet their revitalization goals and improve the quality
    of housing and economic opportunities for low- and moderate-income people;

•   Expand the impact and reach of the NeighborWorks® network;

•   Maximize the visibility of the NeighborWorks® System (NeighborWorks®
    organizations, Neighborhood Reinvestment and affiliated entities);

•   Increase resources to support the activities of the NeighborWorks® System;

•   Provide responsive, integrated, seamless and efficient customer-oriented services; and

•   Be in the vanguard of the community-development field.

On September 30, 2003, the Corporation submitted a revised six-year strategic plan (for
the fiscal years FY 2003 through FY 2008) in conformance with the Government
Performance and Results Act (GPRA).

In FY 2005, under the leadership of its current Chief Executive Officer Ken Wade, the
Corporation intends to prepare a strategic plan for the years FY 2007 through FY 2011.

Neighborhood Reinvestment Corporation       50                            February 2005
FY 2006 Budget Justification
In further sharpening its focus on the intended outcomes of these broad goals, the
Corporation subsequently adopted the following framework that even more succinctly
expresses its strategic priorities:

                                        In order to

                            IMPROVE PEOPLE’S LIVES and



                NETWORK OF EXCELLENCE;

            •   FOSTERS INNOVATION;



Neighborhood Reinvestment Corporation       51                        February 2005
FY 2006 Budget Justification
T. Capacity Building

                                        Dollars in Thousands

                                        FY 2005    FY 2006     FY ’05 EST./
                                         EST.       JUST.      FY ’06 JUST.
            Total Functional Uses        $37,175    $38,855     $1,680   5%
            of Funds*

            Total Uses of Funds*        $118,492   $120,650     $2,158     2%
            Percent of Funds                31%        32%

        *These figures reflect appropriated and other core uses of funds. Uses of funds
        under restricted grant revenue from government agencies, corporations and
        foundations are not included.

        “Capacity building” refers to the practical assistance provided to strengthen the
        performance of a NeighborWorks® organization. A key component of
        Neighborhood Reinvestment’s mission is to continually enhance the capabilities
        of NeighborWorks® organizations so they most effectively and efficiently respond
        to the needs of their communities. Neighborhood Reinvestment expands the
        capacity of network members by providing a high degree of on-site technical
        assistance. Often this technical assistance helps a local organization re-examine
        its operations or delivery of services in order to improve its efficiency. Though
        the Corporation does suggest and will assist an organization in overhauling either
        systems or programs, Neighborhood Reinvestment does not make decisions or act
        on behalf of local NeighborWorks® organizations without their consent.

        Neighborhood Reinvestment increases the capacity of local NeighborWorks®
        organizations by providing onsite technical assistance and expendable grants to:

        •   Improve internal systems and procedures for financial management,
            accounting and board oversight;
        •   Expand programmatic activity;
        •   Develop fundraising and marketing strategies;
        •   Implement financing mechanisms and partnerships with the private and public
            sectors; and
        •   Disseminate cutting-edge strategies and “best practices.”

        Neighborhood Reinvestment and leaders within the NeighborWorks® network
        have identified six critical functional areas as identified below. Neighborhood

Neighborhood Reinvestment Corporation        52                           February 2005
FY 2006 Budget Justification
        Reinvestment field staff are well prepared to provide consultation in these major

        •   Organizational development;
        •   Single-family housing;
        •   Multifamily housing;
        •   Resource development and marketing;
        •   Community and business planning; and
        •   Management systems.

        The effectiveness of the services provided is measured through regular surveys,
        focus groups and other feedback mechanisms. The impact of Neighborhood
        Reinvestment’s capacity-building efforts will continue to be demonstrated by the
        increased productivity, investment and community impact generated by
        NeighborWorks® organizations (individually and collectively as a national

        In FY 2006, the Corporation expects to expend $38,855,000 of appropriated funds
        and other core revenue in this functional activity, 32 percent of available funds. In
        FY 2006, $19,765,000 in capacity grants will be awarded to the growing
        NeighborWorks® network.

        In FY 2006, the Corporation plans to continue to concentrate its resources on
        building the capacity of NeighborWorks® organizations to produce more
        homeowners, particularly minority homeowners and those with very limited
        incomes. In addition, Neighborhood Reinvestment staff members will provide
        training and technical assistance regarding board oversight and governance to
        increase the confidence and competence of new and existing NeighborWorks®
        organization board members.

        In FY 2006, Neighborhood Reinvestment also intends to expand the grant
        underwriting pilot to all chartered members of the NeighborWorks® network.
        Under this approach to grant-making, Neighborhood Reinvestment will
        underwrite the affiliated organization’s overall multiyear operating plan and
        goals, rather than funding discrete short-term projects. The first step in this grant
        process is to evaluate the organizational health, capacity and potential of the
        NeighborWorks® organization. Field and organizational assessment staff
        consider the potential grantee’s goals, strategies and priorities in context of their
        performance, community, market, finances, sustainability and need for
        improvement. Grantees will provide production and financial reports of their
        progress toward the goals set forth in their grant applications. It is believed that
        this innovative process will build greater local organizational capacity while
        strengthening the value of the relationship between Neighborhood Reinvestment
        and chartered members of the NeighborWorks® network.

Neighborhood Reinvestment Corporation        53                             February 2005
FY 2006 Budget Justification
                                FY 2006 Justification Compared to FY 2005 Estimate

                                                   In Thousands

                                           FY 2005             FY 2006                   CHANGE
USES OF FUNDS                               EST.           JUSTIFICATION                  $       %
Compensation                                  $11,416                $12,204              $788    7%
Travel                                          1,649                  1,605               (44)  -3%
Professional Services                           2,953                  2,665             (288)  -10%
Conferences and Workshops                         397                    397                  0   0%
Occupancy                                       1,300                  1,300                  0   0%
Other Operating Costs                             919                    919                  0   0%
         Subtotal Operating Costs               18,634                   19,090             455        2%

Grants                                          18,541                   19,765           1,244        7%
         Total                                 $37,175                  $38,855           1,679        5%

                 FY 2005 GOALS
                 In FY 2005, the Corporation expects to obligate $37,175,000 to this function, 31
                 percent of the total funds available Neighborhood Reinvestment’s FY 2005
                 capacity-building goals include:

                 •   An increased focus on assisting the NeighborWorks® network to engage local
                     leadership in developing solid business and strategic plans that establish
                     organizational priorities and guide programmatic activity (in preparation for
                     network-wide organizational underwriting);
                 •   Improved home-ownership strategies and counseling skills, particularly those
                     related to using Section 8 vouchers to promote new home-ownership
                     opportunities and effective post-purchase efforts that ensure successful
                     ownership over the long term;
                 •   Additional strategies to develop and manage mixed-income affordable rental
                     and mutual housing with a particular effort devoted to serving families at 30
                     percent of median income and below;
                 •   Expanded peer-to-peer assistance, including diagnostic site visits by staff of
                     established network members to newer organizations;
                 •   Upgrading computer capacity and connectivity including the full deployment
                     of Nstep, an improved client-tracking and data-collection tool for use by local
                     NeighborWorks® organizations; and
                 •   Technical assistance to network organizations undergoing staff transitions,
                     especially at the executive level.
    FY 2004 RESULTS
    In FY 2004, the capacity of more than 230 active organizations serving more than 2,700
    communities was increased as a direct result of the Corporation’s training, technical

    Neighborhood Reinvestment Corporation             54                             February 2005
    FY 2006 Budget Justification
assistance and other services. The Corporation continued to assist NeighborWorks®
organizations in meeting several recurring needs, including:

•     New resource partners;
•     Development and management of revolving loan funds;
•     Strategic planning and revitalization strategies;
•     Multifamily and problem-property management;
•     Home-ownership promotion;
•     Board- and resident-leadership development; and
•     Upgraded financial management and other internal systems.

Affiliations with 14 organizations were initiated in FY 2004:

            Organization                                    City and State
Atlanta Mutual Housing Association, Inc.                    Atlanta, Georgia
East Akron Neighborhood Development Corp., Inc.             Akron, Ohio
Interfaith Housing Alliance, Inc.                           Frederick, Maryland
Orlando Neighborhood Improvement Corporation                Orlando, Florida
Southwest Minnesota Housing Partnership                     Slayton, Minnesota
Centro Campesino-Farmworker Center, Inc.                    Florida City, Florida
North East Community Action Corporation                     Bowling Green, Missouri
Community Housing Initiatives                               Spencer, Iowa
Durham Community Land Trustees, Inc.                        Durham, North Carolina
Housing Partnership, Inc.                                   Louisville, Kentucky
Humanities Housing, Inc.                                    Charleston, South Carolina
Isles, Inc.                                                 Trenton, New Jersey
New Directions Housing Corporation                          Louisville, Kentucky
Northwest Regional Facilitators                             Spokane, Washington

Some of the results of Neighborhood Reinvestment’s capacity-building efforts are
illustrated in the following brief stories:

Black Hills Neighborhood Housing Services (Deadwood, South Dakota)
As a result of resource development training provided by Neighborhood Reinvestment
staff to board members of the Black Hills NHS, contributions from the organization’s
annual giving campaign increased by 42 percent in one year, and by an additional 20
percent in the following year. These funds provided the resources the NHS needed in
order to retain staff and sustain services to the community in the face of diminishing
resources and increasing costs.

Neighborhood Housing Services of San Antonio
Rose Alejo, a 51-year old grandmother, was able to realize her dream of homeownership
thanks to the NHS of San Antonio and the national partnerships forged by Neighborhood
Reinvestment Corporation with the National Credit Union Administration and Credit
Union National Association. Alejo was the first client served by Security Service Federal
Credit Union’s low-income mortgage assistance program in partnership with the NHS of

Neighborhood Reinvestment Corporation      55                            February 2005
FY 2006 Budget Justification
San Antonio. Under this program, she was eligible to receive 85 percent of the first
mortgage value on a home. The NHS provided homebuyer education and the second
mortgage, which covered the gap above 85 percent of value. In addition, the NHS of San
Antonio was one of the first NeighborWorks® organizations to participate in the Sears
Home Management program, another national partnership forged by the Neighborhood
Reinvestment Corporation. Upon completion of the home management class, Alejo
gained the knowledge, skills and confidence required to maintain and improve her home.

Neighborhood Reinvestment Corporation     56                          February 2005
FY 2006 Budget Justification
     U. Preserving Affordable Housing and Equity Capital

                                              Dollars in Thousands

                                                  FY 2005      FY 2006        FY ‘05 EST./
                                                   EST.         JUST.         FY ’06 JUST.

              Total Functional Uses of             $43,200       $43,200            $0      0%

              Total Uses of Funds*               $118,492      $120,650        $2,158      2%
              Percent of Funds                       36%           36%

     *These figures reflect federal and other core uses of funds. Uses of funds under restricted grant
     revenue from government agencies, corporations and foundations are not included.


                                             FY 2004               FY 2005               FY 2006
                                             ACTUAL                 EST.                  JUST.
      Revolving loan fund
      investment                                  $151,759              $110,000             $ 113,000

      Other direct investments                  $2,056,862            $2,150,000            $2,200,000

      TOTAL INVESTMENTS                         $2,208,621            $2,260,000            $2,313,000
      New home-ownership units                      14,634                14,784                15,523
      New mutual-housing units and
      affordable rental units                         3,496                 3,000                 3,000

      Rehab and other units                           5,989                 5,600                 5,700
      Repaired units                                 19,364                18,000                18,500
      Owned and managed units                        47,593                50,593                53,593
      Individuals provided with
      home-ownership counseling                      90,111                80,163                82,568

          TOTAL SERVICES*                           176,228              167,662              174,332

* To preclude possible double counting, yearly production of multifamily and Mutual Housing
  production is excluded from the total (3,496 units in FY 2004 and 3,000 units each year in

     Neighborhood Reinvestment Corporation           57                               February 2005
     FY 2006 Budget Justification
FY 2005 and FY 2006). In addition, the estimated number of families is used, instead of
housing units. Based on 2002 data from the Campaign for Home-Ownership, 10 percent of
all assisted homebuyers purchase houses with more than one living unit.


   Revolving Loan Fund Investment
   This is the dollar amount of investment made by NeighborWorks® organizations from their
   revolving loan funds. Revolving loan funds are flexible, locally controlled and serve a variety of
   purposes, including loans based on a family’s ability to repay. This category, which pertains to
   completed projects, includes loans closed plus the equity investment in real estate made by local
   programs. Revolving loans can be sold to Neighborhood Housing Services of America, at par
   (face value) and with recourse.

   Other Direct Investment
   These are the dollar volume of loans, equity and capital improvements directly invested as a
   result of the efforts of NeighborWorks® organizations working with private and public lenders
   and grant sources, including city and state governments and housing finance agencies. (This
   figure does not include the investments counted under revolving loan fund investments.)

   Repaired Units
   This figure includes units that received minor or emergency repairs, such as exterior painting,
   weatherization or furnace replacement, costing less than $2,000 a unit.

   Members of the NeighborWorks® network do not subscribe to the simplistic view that
   housing alone will change a community, but they do maintain the conviction that safe,
   affordable housing is a key element in comprehensive community revitalization – and, of
   course, a continuing pressing need for thousands of America’s families.

   Revolving loan funds remain the cornerstone of most NeighborWorks® organizations.
   Most revolving loan funds were initially capitalized to support home repair. However,
   the uses of these funds have expanded greatly over the years to include down-payment
   and closing-cost assistance, energy-conservation repairs, commercial and small business
   loans, predevelopment costs, acquisition of problem properties, and a host of other
   initiatives that spawn or support community revitalization and affordable housing

   The availability of equity capital, in the form of highly flexible Neighborhood
   Reinvestment grants to local organizations’ revolving loan funds, is also vitally important
   in helping build a local asset base from which to build future community-revitalization
   initiatives. This flexible capital enables NeighborWorks® organizations to leverage
   private-sector investments that finance the bulk of their revitalization activities. Equity-
   capital grants continue to be one of Neighborhood Reinvestment’s most strategic
   investments in the NeighborWorks® network.

   Neighborhood Reinvestment Corporation       58                             February 2005
   FY 2006 Budget Justification
The Corporation helps NeighborWorks® organizations rehabilitate existing housing
stock, construct new housing, acquire problem properties or properties in the process of
disposition, promote home ownership (including through the Housing Choice Voucher
Homeownership effort) and further mixed-income, affordable-housing opportunities.

Among those likely to be vulnerable in an economic downturn are families with no reserves.
These are families who have purchased “fixer-uppers;” families who suffer divorce, job loss or
medical emergencies; and families who, early in their tenure as homeowners, are tempted by
offers that create serious credit problems. Increasingly, delinquency prevention and foreclosure-
intervention are key activities of the NeighborWorks® System.

Neighborhood Reinvestment also anticipates the need to replenish local revolving loan funds for
rehabilitation and repairs. This kind of assistance often sustains a family that is experiencing
temporary financial difficulty, allowing them to make critical repairs affordably while avoiding
delinquency problems. In so doing, the marketability of the neighborhood does not suffer, and
investments others have made in it are less at risk.

NeighborWorks® Campaign for Home Ownership

The NeighborWorks® System has always promoted home ownership and has achieved
substantial progress since 1993 through the NeighborWorks® Campaign for Home
Ownership. The NeighborWorks® Campaign for Home Ownership is a joint effort of
government, banks, the insurance industry, secondary markets, the real-estate community
and others, coordinated by Neighborhood Reinvestment in conjunction with more than
158 community-based NeighborWorks® organizations.

Since 1993, the combined efforts of the Campaign have created more than 81,000 new
homeowners (the majority of whom are low- and moderate-income minority families)
and provided counseling to over 471,000 individuals. As a result, $7.83 billion has been
invested in many of America’s distressed communities.

The NeighborWorks® Campaign for Home Ownership assists NeighborWorks®
organizations to set clear goals and define high quality standards. Innovative tools and
ideas, such as Full Cycle LendingSM, NeighborWorks HomeOwnership Centers®, and
Financial Fitness have also been developed, tested and supported. A steering committee
composed of executive directors from NeighborWorks® organizations helps set goals for
the Campaign for Home Ownership.

Progress toward Campaign Goals :
January 1, 2003 – June 30, 2004 (30 percent of five-year goal period):

                                        Goal Production To Date     % of Goal
    Total new homeowners                50,000      17,710          35%
    Total minority homebuyers           30,000       9,189          31%
    Total amount of investment          $6 billion  $2.17 billion   36%
    Total families counseled            500,000     96,100          19%

Neighborhood Reinvestment Corporation        59                          February 2005
FY 2006 Budget Justification
NeighborWorks® Multifamily Initiative
Multifamily housing continues be a great challenge to community revitalization. Many
multifamily housing properties lack sufficient capitalization, have inadequate
replacement reserves, and suffer from incompetent management. To counter this,
Neighborhood Reinvestment awards equity grants which may be used for
predevelopment costs or equity capital. These funds, in turn, attract additional
predevelopment funding, conventional financing, tax credits, and subsidized loans.
NeighborWorks® organizations use the resulting improved cash flow to better maintain
the buildings and serve residents through after-school computer workshops, and financial
literacy and job training.

Five-Year Goals
In FY 2004, the Corporation launched the second set of five-year goals for the
NeighborWorks® Multifamily Initiative. The goals for 2004 through 2008 are to:

    •   Develop or preserve 15,000 units;

    •   Attract $1 billion in investment in these affordable properties;

    •   Support portfolio performance and asset management systems of members so that
        90 percent of portfolios are positively performing;

    •   Serve 15,000 residents with asset building services through learning centers; and

    •   Increase multifamily resident leadership so that 3,500 residents serve in
        leadership on properties or communities.

FY 2005 Goals
    •   Develop or preserve 3,000 units;

    •   Attract $210 million in investment in these affordable properties;

    •   Support portfolio performance and asset management systems of members so that
        90 percent of portfolios are positively performing;

    •   Serve 15,000 residents with asset-building services through learning centers; and

    •   Increase multifamily resident leadership so that 3,500 residents serve in
        leadership on properties or communities.

FY 2006 Goals
    •   Develop or preserve 3,000 units;

    •   Attract $210 million in investment in these affordable properties;

    •   Support portfolio performance and asset management systems of members so that
        90 percent of portfolios are positively performing;

Neighborhood Reinvestment Corporation        60                              February 2005
FY 2006 Budget Justification
    •   Serve 15,000 residents with asset-building services through learning centers; and

    •   Increase multifamily resident leadership so that 3,500 residents serve in
        leadership on properties or communities.

                     FY 2006 Justification Compared to FY 2005 Estimate

                                        In Thousands

                                 FY 2005             FY 2006              CHANGE
  USES OF FUNDS                   EST.           JUSTIFICATION            $    %
  Grants                              43,200               43,200            0   0%
         Total                       $43,200              $43,200           $0   0%

        In FY 2006, Neighborhood Reinvestment expects to obligate $43,200,000 to this
        function, 36 percent of the total funds available.

        FY 2005 GOALS AND FY 2004 RESULTS
        In FY 2005, the Corporation expects to obligate $43,200,000 to this function, 36
        percent of the total funds available. Selected production measures are noted on
        the first page of this section.

The following brief story demonstrates the impact of the NeighborWorks® network’s
efforts to help individuals and families realize their home-ownership goals:

Home HeadQuarters Inc, (Syracuse, New York)
Helping Awaken a Tired City

Sheila Jones walked past the house on her way to work hundreds of times and never
noticed it. Then one day, “The house just grabbed me, like ‘Where are you going?’” she

As soon as she got to her job at Kirk Park, where she is director of the Park Department’s
recreation center, she called the number she’d jotted down from the Home HeadQuarters
sign in the window. She told them, “‘I’m calling about my house.’ Now I get teased
about how I said it was my house right from the beginning.”

Thus began Jones’s five-month-long adventure in becoming a homeowner – the first ever
in her entire extended family.

Jones traveled a carefully thought-out and established path created by Home
HeadQuarters just for residents like her. She took advantage of its housing rehab
program, since her 80-year-old house required a considerable upgrade. She completed its
Certified Homebuyer Education Course.

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FY 2006 Budget Justification
Her financing was made possible by Home HeadQuarters partnerships with government
agencies (she received funds that came through the New York State HOME program and
the city of Syracuse’s CDBG funding); contributors to its revolving loan fund; and banks
and other financial institutions that support its Down Payment and Closing Cost Loan

With a first mortgage for $30,000 from Fleet Bank, a second mortgage at zero percent
interest from two grants supplied through Home HeadQuarters, and a deferred home-
improvement loan (she won’t have to repay if she stays in her home for at least 10 years),
Jones was able to purchase an $80,000 home that she believes would be worth “more like
$175,000” if it were in a less-distressed neighborhood.

Rural Ulster Preservation Company
The Rural Ulster Preservation Company (RUPCO) of Kingston, New York was recently
awarded $1,000,000 in HOME funds for the construction of 40 affordable homes within
Ulster County. The homes will be part of a mixed-income subdivision in the Town of
Saugerties. The subdivision will preserve approximately 40 acres of a 70-acre parcel
through clustering. The work-force homes will be sold to families with an income range
of 50 percent to 80 percent of the Area Median Income (AMI), which is $28,000 to
$45,000 for a family of four, respectively. Neighborhood Reinvestment staff are
providing extensive technical assistance on the development of the property. In addition,
the Corporation has provided grant funding for RUPCO to use first in construction to
reduce construction financing costs, and to then be used as soft loans to the purchasers, to
be repaid at sale.

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V. Organizational Assessment

                                        Dollars in Thousands

                                        FY 2005     FY 2006      FY ‘05 EST./
                                         EST.        JUST.       FY ’06 JUST.
            Total Functional Uses of     $4,395       $4,562     $167     4%
            Total Uses of Funds*        $118,492    $120,650     $2,158        2%
            Percent of Funds                 4%          4%

            Program Reviews                100%        100%
            Audits Reviewed **             100%        100%

        *These figures reflect appropriated and other core uses of funds. Uses of funds
        under restricted grant revenue from government agencies, corporations and
        foundations are not included.

        **This figure includes a number of prior year audits from organizations being
        considered for new charters.

        FY 2005 AND FY 2006 GOALS AND METHODS
        Neighborhood Reinvestment pays a great deal of attention to the capacity of a
        NeighborWorks® organization to successfully manage programmatic risks and to
        ensure its financial and organizational stability. The organizational assessment
        function evaluates all of the NeighborWorks® network members – with a
        particular focus on underperforming organizations and those organizations with
        high capital fund balances. The purpose of Neighborhood Reinvestment’s
        approach to organizational assessment is to:

        •    Reduce risk to individual organizations and thus, to the NeighborWorks®
             System overall;
        •    Better focus limited technical assistance to increase the capacity of
             NeighborWorks® organizations to successfully predict, mitigate and manage
             risk; and
        •    Steadily increase the health, performance, productivity and effectiveness of
             NeighborWorks® organizations as a whole.
        Neighborhood Reinvestment conducts continuous oversight of NeighborWorks®
        organizations, consisting of the following elements:

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FY 2006 Budget Justification
        •   A committee composed of senior managers from Neighborhood Reinvestment
            and NHSA reviews key risk indicators obtained from various sources
            throughout the Corporation and assigns a risk and/or health ranking to each
            NeighborWorks® organization.
        •   In addition to on-site reviews, Neighborhood Reinvestment also maintains a
            system of “continuous monitoring,” which provides for ongoing, off-site, risk-
            based reviews. These reviews focus on risk issues and are based on individual
            organizational profiles that are updated continuously as financial and
            programmatic information is received. Neighborhood Reinvestment also
            requires and reviews annual financial audits and management letters from
            each NeighborWorks® organization.
        •   Neighborhood Reinvestment conducts a full-scope onsite program review of
            each NeighborWorks® organization every 24 to 36 months, in addition to
            periodic targeted onsite monitoring visits by the program review staff. These
            result in reports that identify programmatic performance, financial health and
            organizational capacity, corrective actions, and areas for improvement in
            order for a NeighborWorks® organization to address vulnerabilities and
            remain in good standing.
        •   Thorough on-site program reviews of organizations applying for
            NeighborWorks® network membership are conducted to ensure that they can
            meet established performance objectives and baseline membership criteria.
        •   Network organizations participating in the Campaign for Home Ownership
            also receive a Full-Cycle LendingSM assessment to identify their capacity to
            obtain and maintain certification as a Full-Cycle LenderSM .
        Neighborhood Reinvestment has developed a uniform program review system
        that is based on evaluating performance expectations and associated risks in six
        key areas best identified by the acronym "PROMPT™." During FY 2004 the
        Organizational Assessment Division completed its upgrade of the PROMPT™
        assessment process and tool. The Corporation has established review procedures
        and tools to help the reviewer and the organization assess its health and
        performance in the following areas:

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FY 2006 Budget Justification
            P – PLANNING
                Mission/Operational Planning/Community Development
                Resource Development/Fundraising
                Corporate Governance/Board/Committee/Partnership
            M – MANAGEMENT
                Financial, Accounting Systems and Procedures
                Contract Management and Compliance System
                Personnel and Administrative Management

        In addition to our PROMPT™ assessment process, the Corporation also conducts
        risk analysis for pre-determined major lines of business as provided for in its
        organizational underwriting process. These lines of business (LOB) and
        definitions are as follows:

NeighborWorks® Lines of Business (LOB)

The major programs, products and services provided by a NeighborWorks®

Normally an activity should be counted as a “Line of Business” only if the organization
has a long-term commitment to it and has both dedicated staff and revenues that support
it. The six listed here are the most common lines of business for NeighborWorks®
 1. Existing Homeowner Services – Loans, grants and home improvement services
    performed for existing owners of one to four family properties. Activities include
    rehabilitation, repair, hazard abatement, and energy conservation, as well as loans
    and grants to homeowners to finance these kinds of improvements.
 2. Homeownership Promotion Services – Activities promoting homeownership
    including Financial Fitness and other education, pre-and post-purchase counseling,
    financial assistance (both loans and grants), and the marketing and sale of newly
    developed properties. Though these activities are all associated with the Campaign
    for Home Ownership, a NeighborWorks® organization need not be a member of the
    Campaign to have this line of business.
 3. Community-Based Economic Development – Activities that improve economic
    conditions in a community. A wide range of activities can further this aim including
    directly creating a business, providing technical or financial assistance to business
    owners who are ready to start or expand a business or create new jobs, offering

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FY 2006 Budget Justification
     employment training, and improving commercial properties or taking other steps to
     improve the environment for local businesses.
 4. Community Building and Organizing – Community organizing and other
    activities that help residents and other community stakeholders come together to
    develop and provide leadership to build a stronger community. A wide range of
    activities can further this aim, including development of neighborhood groups
    and/or associations; leadership-skill-development training courses; youth activity
    and training groups; community fairs, and other opportunities to encourage a
    renewed energy, expertise, and focus in the community.
 5. Asset and Property Management – Asset management includes the long term
    responsibilities of ownership of real estate including such activities as deciding on
    the type of portfolio to be developed, market positioning of portfolio properties,
    refinancing, capital improvements, and selection and oversight of property manager.
    Asset management responsibilities come with any property owned outright by the
    organization, a subsidiary, or a general partner interest held by the organization or
    its subsidiary. Property management includes the day-to-day operating
    responsibility for managing real estate that they organization owns directly or
    properties owned by other entities. Organizations are often responsible for this
    function on properties that they own directly and may hold contracts to perform
    property management on properties owned by other entities.
 6. Real Estate Development – All the activities involved in developing real estate
    regardless of whether the project is residential or commercial, rental or for-sale.
    Development activities might include conceptualizing project, selecting and
    acquiring sites, managing design, assembling predevelopment, construction and
    permanent financing, obtaining approvals, and overseeing construction and lease-up.
    There may be overlaps between this line of business and others depending on the
    nature of the project being developed.

    FY 2006 GOALS

    In FY 2006, the Corporation expects to devote $4,562,000, 4 percent of its “core”
    sources of funds, to conduct program reviews for 100 percent of organizations in the
    network and to review 100 percent of the audits received.

    In FY 2006, the number of on-site reviews will continue to be directly related to the
    Corporation’s organizational underwriting efforts. Enhanced data collection and
    integration will provide more timely off-site reports and financial health assessments
    will be offered upon request by individual network organizations.

    Organizational Assessment staff members will continue to seek and collaborate with
    other intermediaries to identify and disseminate best practices related to risk
    management and program review of other nonprofit organizations devoted to housing
    and community revitalization.

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FY 2006 Budget Justification
      Organizational Assessment staff members will continue to pursue an ongoing
      curriculum of staff development to ensure they maintain their technical expertise and
      awareness of developing strategies and trends.

      Through a cross-functional committee established as a part of Neighborhood
      Reinvestment’s strategic plan, the Organizational Assessment division will continue
      to update the performance standards and measures it uses. This update will include
      more in-depth analysis of each network organization’s specific line of business as it
      pertains to risk and capacity and provide enhanced assessment through the
      development of key performance indicators. These indicators, developed for each of
      the six major lines of business will provide for a more effective analyses of each
      NeighborWorks® organization receiving a program review.

      In FY 2006, Organizational Assessment will continue its use of the collaborative on-
      site program review process with participation of district and National Initiative staff
      and management, ensuring consistent distribution of program review reports within
      20 business days.

                                          FY 2005              FY 2006              CHANGE
USES OF FUNDS                              EST.            JUSTIFICATION            $       %
Compensation                                   $3,134                $3,347         $213    7%
Travel                                            334                    334            0   0%
Professional Services                             461                    415         (46) -10%
Conferences and Workshops                          18                     18            0   0%
Occupancy                                         272                    272            0   0%
Other Operating Costs                             176                    176            0   0%
       Subtotal Operating Costs                 4,395                  4,562          167   4%
Grants                                              0                      0            0   0%
       Total                                   $4,395                $4,562         $167    4%

          FY 2004 RESULTS

          During FY 2004, Organizational Assessment provided on-site program reviews,
          off-site organizational health assessments, and comprehensive audit reviews for
          all chartered NeighborWorks® organizations. On-site program reviews were
          completed for 86 organizations; off-site assessments for 148 organizations; 93
          annual financial health assessments; and a total of 214 audits were reviewed. In
          addition, 13 three-year financial health assessments were conducted for charter

          Procedures were upgraded for reviewing network organization audits to ensure
          compliance with grant eligibility criteria and a separate analysis performed to
          assess financial health and cash flow trends. NeighborWorks® grant eligibility
          continued to be at a high level during FY 2004.

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  FY 2006 Budget Justification
        The “Guidance for the Conduct of Audits” (GCA), used by staff and auditors of
        affiliated NeighborWorks® organizations, continues to be updated to allow for
        changes made to OMB Circular A-133 and in accordance to nationally recognized
        GAAP/GAAS standards. The GCA was designed to assist network organizations
        for use in conducting their independent financial audits.

        An improved, corporate-wide assessment process was designed and adopted
        during FY 2004 allowing Neighborhood Reinvestment Officers and senior staff
        including NHSA representatives to assess the health and capacity of network
        organizations on an ongoing basis. This system, known as the Organizational
        Health Tracking System (OHTS) centers on quarterly meetings and maintaining a
        “watch list” of vulnerable programs based on established risk assessment criteria.
        This system allows for collaborative assessment and follow-up by district field
        offices to ensure performance improvement in areas of operations determined to
        be in need of strengthening.

Neighborhood Housing Services of Southern Nevada
Organizational Assessment staff expressed concern that limited oversight on the part of
the board of NHS of Southern Nevada posed considerable risk to the organization’s
compliance with its regulatory and contractual requirements. The board was further
encouraged to oversee development and implementation of policies, procedures and
written criteria for identifying properties to be developed, conducting due diligence for
development projects, servicing loans, and managing financial transactions and reporting.

As a result of the review, NHSSN’s board positioned itself to better fulfill the
organization’s mission, safeguard its resources and meet partnership obligations with an
updated strategic plan; updated by-laws, homeownership and rental property program
policies and procedures, and increased involvement and oversight by commissioned
executive, project, resource development/finance, and personnel/nominating committees.

Increased focus on the part of board and staff has resulted in the third highest efficiency
level in the Rocky Mountain District with production of more than 23 units of service and
leveraging over $2.8 million in neighborhood investment per full-time employee (FTE).
The agency has increased affordable homeownership opportunities: 147 households that
received down-payment assistance and second mortgages of $712,000. These funds were
used to leverage $18,815,000 in home sales through NHSSN’s Homeownership/Lending
Programs from October 1, 2002, through September 30, 2004.

The agency has increased the availability of affordable rental units by expanding its
rental portfolio from 26 units in 2001 to 50 in two targeted neighborhoods. Nine of its
tenants have been graduated to homeownership, among 26 households participating in the
agency’s Move Up to Home Ownership program.

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FY 2006 Budget Justification
W. Training And Informing

                                   Dollars in Thousands

                                             FY 2005       FY 2006       CHANGE
                                              EST.          JUST.       FY ’05 EST./
                                                                        FY ’06 JUST.
      Total Functional Uses of Funds*            $14,778     $14,779        $1 <1%

    Total Uses of Funds*                      $118,492      $120,650    $2,158      2%
    Percent of Funds                              12%           12%

    Training Contact Hours **                    200,000     225,000    25,000     13%

    Professional Certificates                      6,100        7,050       950    16%

*These figures reflect appropriated and other core uses of funds. Uses of funds under
restricted grant revenue from government agencies, corporations and foundations are not

**A training contact hour is an hour a student or participant spends in a classroom; a one-
day course is equivalent to 7.2 training contact hours. The significant increase in training
contact hours and number of professional certificates from FY 2005 to FY 2006 is due to
the large award to NCHEC from HUD, as described in section II-C.


From its inception in 1978, Neighborhood Reinvestment has always recognized that
education and information are powerful tools for neighborhood revitalization and lasting
community change. The Corporation has continuously improved and expanded its
training and information services to meet the growing demands and sophistication of the
housing and community development field. Through research, communications and
training functions, Neighborhood Reinvestment collects and disseminates pertinent and
useful information for the NeighborWorks® network and the broader housing and
community development field. The Corporation imparts this data and information
through a variety of vehicles, and trains and informs the network and representatives of
the broader industry through national and regional training events, publications, online
information (at and other venues. The Corporation’s computer network
enables NeighborWorks® members and others in the industry to communicate more
effectively and share resources and ideas.

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FY 2006 Budget Justification
The Corporation will continue its ongoing data collection and reporting tasks the results
of which are used by the Corporation for its production planning, organizational
development and risk assessment.
In addition, through its applied research function, the Corporation will continue to serve
as a laboratory to test new ideas and programs that can ultimately impact how the
NeighborWorks® network and the community development field improve lives and
revitalize communities. Some examples of applied research projects in FY 2005 and
2006 include:

•   Capital Demand Study: This inquiry focuses on how to strategically and equitably
    address the pre-development capital needs of NeighborWorks® organizations across
    an increasingly broad and diverse network. In FY 2005, the current and projected
    demand for development capital will be assessed through a survey of all
    NeighborWorks® organizations. With a better understanding of the capital needs of
    the network, Neighborhood Reinvestment will develop and implement a strategy to
    consolidate the Corporation’s related capital corporations into a single entity to meet
    this demand;

•   Homeownership in High-Cost Housing Markets: This project will be conducted with
    one or more national partners to analyze the challenges of promoting homeownership
    for first-time, low-income families in high-cost markets; and,
•   NeighborWorks® – Joint Center for Housing Studies Summer Fellowship Program:
    Emerging Leaders in Community and Economic Development: This competitive
    summer fellowship program for students in professional programs at Harvard
    University provides cost-effective analytical projects that support the mission of the
    NeighborWorks® Network while also inspiring future leaders in community and
    economic development. The papers generated by the Emerging Leaders projects have
    received media coverage and garnered the attention of policy makers at the national
    level, demonstrating the potential impact of each fellowship project. The selected
    topics have addressed specific issues of concern to NeighborWorks® Organizations.
    Two fellows are selected annually.

Development and Communications

As part of its strategic plan, Neighborhood Reinvestment has committed to build the
capacity of the NeighborWorks® System to raise its visibility and better market its
services and accomplishments. As the collective accomplishments of the
NeighborWorks® network become better known, local NeighborWorks® organizations
will be better able to obtain local financial support, further leveraging Neighborhood
Reinvestment’s federal appropriation. A primary purpose of Neighborhood
Reinvestment’s Development and Communications function is to raise the visibility of
the NeighborWorks® system and generate additional private-sector support for the
activities of the NeighborWorks® network. In addition, the Corporation is dedicated to

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FY 2006 Budget Justification
the dissemination of best practices and applied research through print and electronic
media and participation in forums and events.

Neighborhood Reinvestment works closely with the NeighborWorks® network to develop
and execute coordinated marketing efforts and provides local NeighborWorks®
organizations with communications tools to strengthen the NeighborWorks® brand.
Neighborhood Reinvestment also provides resource-development assistance that includes
the development of strategic partnerships and the delivery of practical training and
ongoing technical assistance.

Neighborhood Reinvestment seeks financial resources from corporations and foundations
on behalf of the NeighborWorks® network, and for priority projects of the Corporation
that benefit the wider community development field. Each NeighborWorks®
organization is responsible for generating most of its own operating support, primarily
from local funding sources. Typically, a significant percentage of their funding has come
from local financial institutions; however, the consolidation that has occurred within the
financial services industry in recent years has made this increasingly difficult. For
example, in many instances a regional or national bank has acquired the local bank, and
funding decisions are now made in a distant corporate office with a wide constituency. In
other instances, financial industry consolidation may mean that a community once served
by 10 financial institutions may now be served by only one or two – resulting in a
commensurate reduction in sources available to local NeighborWorks® organizations.
Neighborhood Reinvestment has been successful in effectively representing the network
to these national and regional financial institutions. The Corporation has also increased
its efforts to raise funds from national organizations outside the financial services
industry on behalf of affiliated organizations.

Further, national and regional corporations and foundations have demonstrated a
preference to establish partnerships with national entities (such as Neighborhood
Reinvestment) rather than enter into relationships and direct funding agreements with a
multitude of local community-based nonprofit organizations. For these national partners,
Neighborhood Reinvestment can act as an intermediary to help identify, act as a conduit
to channel funds to, and provide oversight of community-based, nonprofit organizations.
For example, in FY 2005 The Home Depot Foundation granted more than $1 million to
Neighborhood Reinvestment for the purpose of regranting their funds to
NeighborWorks® organizations for hurricane rebuilding and for “green building”

The Corporation also furthers the aims of the NeighborWorks® System through the
NeighborWorks® Insurance Alliance (NIA), which was based on the success of the
National Insurance Task Force pilot. NIA adds value to the NeighborWorks® network by
providing useful input, tools, and leveraging private sector resources to support the
programmatic, resource development, and marketing efforts of the NeighborWorks®
System. Through its partnership of insurers, NeighborWorks® organizations, insurance
regulators, and insurance trade associations, NIA provides advice to enhance the service

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FY 2006 Budget Justification
delivery of the Corporation, add value to the national and local resource development
efforts, and enhance the visibility of the NeighborWorks® network.

The Corporation also delivers nationwide marketing and communications services to
support special activities such as National NeighborWorks® Week, the NeighborWorks®
Campaign for Home Ownership and the NeighborWorks® Multifamily Initiative. The
Corporation helps NeighborWorks® organizations market their services and build
stronger alliances with residents and businesses.

To accommodate a growing cadre of practitioners seeking information about best
practices, community-development strategies, affordable housing, revitalization efforts
and related information, the Corporation continues to enhance the capacity and
accessibility of its website ( A redesigned site featuring a new look and
feel, greater utility, solidified core content sections, and opportunities to reach
stakeholders have made the website a medium of choice for practitioners and audiences
in both the public and private sectors. The site is an enormous repository of information
for the broader community development field, which also serves members of the
NeighborWorks® network. Other continued improvements to the information
architecture of the Corporation’s website are scheduled for FY 2005. Collaborations with
other entities, such as the one undertaken with Fannie Mae Foundation’s KnowledgePlex,
are expected to continue.


A central part of Neighborhood Reinvestment’s mission is to provide the highest quality
professional development for community-development practitioners both within the
NeighborWorks® network and beyond. Neighborhood Reinvestment is generally
regarded as offering some of the finest community-development training in the nation.
The NeighborWorks® Training Institutes operate like a weeklong college; approximately
70 to 75 courses are offered to more than 1,400 individuals at each event. The
Corporation offers certificates in eight formal programs of study: Home Ownership and
Community Lending; Management and Leadership; Community Building; Neighborhood
Revitalization; Community Economic Development; Affordable Housing; Construction
and Production Management; and Rural Development.

The NeighborWorks® Training Institute provides a venue for national and regional
community development organizations to provide and receive training. National
organizations such as the Local Initiatives Support Corporation (LISC), The Enterprise
Foundation and the National Council of La Raza, endorse the Training Institutes.
Regional organizations also work closely with the Institute, including the Rural
Community Assistance Corporation, the New Orleans Neighborhood Development
Collaborative, and the Atlanta Neighborhood Development Partnership.

A number of private-sector supporters have provided scholarships and other resources in
support of NeighborWorks® Training Institutes. These include Wells Fargo Housing
Foundation, State Farm Bank, the Mortgage Guarantee Insurance Corporation,

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FY 2006 Budget Justification
Washington Mutual, the Citigroup Foundation, Fannie Mae and Fannie Mae Foundation,
Ford Foundation, Fleet Bank, Freddie Mac, Hilton Hotels, and the Local Initiatives
Support Corporation (LISC).

FY 2006 Training Institute Production Goals

The infusion of $7.75 million from the Department of Housing and Urban Development
for the NeighborWorks® Center for Homeownership Education and Counseling
(NCHEC) will allow Neighborhood Reinvestment to meet aggressive new goals in
community development and housing training. During FY 2006, Neighborhood
Reinvestment will ensure that 7,050 professional community-development and housing-
training certificates will be earned by practitioners from around the country in the
following areas:

       •    3,400 in Homeownership Education, Counseling and Lending
       •    1,660 in Construction, Production, Real Estate and Housing Management
       •    950 in Nonprofit Management and Leadership
       •    1,040 in Community Economic Development, Neighborhood Revitalization,
            Community Building, and Native American and Rural Development

This training of community development and housing practitioners will result in 225,000
contact hours training to 12,800 housing and community development practitioners in

The NeighborWorks® Training Institute will also continue to conduct its state-of-the-
industry symposia of experts and practitioners on issues of critical importance to the
community development field. Past symposia have featured cutting edge research and
new practices and strategies related to minority homeownership, predatory lending,
reaching Latino populations, and rural economic development. Through panel
presentations, research, case studies and interactive discussions, these symposia provide
timely information and offer a forum for participants to improve their understanding of
issues, innovations and best practices.

Other important initiatives in FY 2006 include:

A. The NeighborWorks® Center for Homeownership Education and Counseling

Homeowner education and counseling training offers enormous economic benefit to both
lenders and homebuyers. Lenders reap benefit in the form of reduced default risks
among counseled borrowers. Researchers with Freddie Mac have documented that face-
to-face, pre-purchase homebuyer education and counseling has a measurable impact on
loan performance, reducing loan defaults by up to 34 percent.2 For homebuyers, avoiding

    Abdighani Hirad and Peter Zorn, “A Little Knowledge is a Good Thing: Empirical Evidence of the Effectiveness of
     Pre-Purchase Homeownership Counseling,” Freddie Mac, May 21, 2001.

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FY 2006 Budget Justification
default means avoiding potential foreclosure, ruined credit, susceptibility to predatory
lenders, and emotional hardship. Moreover, counseling provides underserved
populations, including low- and moderate-income, minority, new immigrant, and female-
headed households, with increased access to home-ownership opportunities by lowering
their default risk in the eyes of lenders.

Neighborhood Reinvestment is viewed by many as providing the finest homebuyer
training-of-trainers curriculum in the industry. Currently, the Corporation trains and
certifies more than 800 educators and counselors each year and confers approximately
2,000 training certificates a year in a wide array of courses in homeownership and
community lending. But a recent Neighborhood Reinvestment scan of the industry
indicates that the unmet demand for such training and certification is many times this

In August of FY 2004, the Neighborhood Reinvestment Training Division launched the
NeighborWorks® Center for Homeownership Education and Counseling (NCHEC).
NCHEC will greatly expand its training and certification in homeownership education,
counseling, and lending professionals. The ultimate goal of the Center is to become the
finest national resource for training, information, and tools to homeownership counselors
and educators. Through NCHEC, the Corporation will increase the number and quality
of homeownership counselors and counseling provided to over two million potential
homebuyers and current homeowners in 2006 and beyond.

The recent contract with the Department of Housing and Urban Development will enable
Neighborhood Reinvestment, through NCHEC, to train and certify HUD-approved
housing counselors around the country. In addition to expanded home-ownership and
community-lending training offered at the NeighborWorks® Training Institutes, NCHEC
will partner with other intermediaries, statewide counseling collaboratives, and
NeighborWorks® organizations to offer trainings in local settings around the country.

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FY 2006 Budget Justification
B. Advanced Practitioner Program (APP)

Neighborhood Reinvestment will continue to offer its highly acclaimed Advanced
Practitioner Program (APP) for seasoned community-development practitioners and their
board members in FY 2006. APP courses are designed to meet the needs of busy and
successful professionals; all learning is applied and performance-based. It consists of
three elements:

1. Achieving Excellence Program is a performance-driven educational program for
   seasoned executive directors in community development organizations. The 18-
   month program includes three formal sessions through Harvard University, led by
   Christine Letts at the Kennedy School/Hauser Center for Non-Profit Management, as
   well as intensive executive mentoring and coaching under the direction of Douglas K.
   Smith, renowned consultant on performance-driven organizational change. At the
   beginning of their tenure in the program, participants select specific and significant
   challenges facing their organizations for which solutions would dramatically and
   fundamentally change not only how their organizations do business, but also provide
   the impetus for change across the field of community development. This is the only
   comprehensive, intensive training of its kind.

2. Contemporary Issues Program comprehensively addresses particular critical issues
   that impede maximum effectiveness at community-based development organizations.
   These two- to three-day courses offer senior community development nonprofit staff
   the opportunity to glean knowledge from faculty and/or experts, and learn from the
   experiences of colleagues in an intimate and confidential setting. Contemporary
   Issues courses are developed in collaboration with practitioners, academic faculty,
   and consultants, and require significant preparatory and follow-up efforts by
   participants. Current course offerings include: Advanced Housing Asset
   Management, Advanced Issues in Bond Transactions, and Organizational Leadership

3. Advanced Clinics offer hands-on courses on timely, relevant, specific issues to a
   broad audience of experienced, senior staff. These one- or two-day intensive skills-
   development courses are designed to address particular issues through a highly
   interactive, clinic approach. Each Advanced Clinics course is available one or two
   times a year, as appropriate, through the NeighborWorks® Training Institutes.

C. Training on Organizational and Financial Oversight for Community
   Development Boards of Directors

The role that boards of directors play in the fiscal and organizational oversight of
community development organizations is increasingly important as these organizations
strive to achieve new levels of home ownership and affordable housing in their
communities with limited resources. Just as in the for-profit corporate world, scrutiny is

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FY 2006 Budget Justification
being applied to ensure that nonprofit boards oversee their organizations’ financial
soundness and operational accountability. Neighborhood Reinvestment intends to
enhance the training provided to community development board members and to increase
the skills and tools that Neighborhood Reinvestment staff members provide to the boards
of NeighborWorks® organizations.

In FY 2006, Neighborhood Reinvestment will train more than 300 board members on
governance and leadership, organizational impact evaluation, strategic direction setting,
and fiduciary responsibilities that will be conducted at Training Institutes and delivered
locally to NeighborWorks® organizations around the country. In addition, the
Corporation will train more than 80 community development board treasurers on
effective financial oversight of their organizations. All NeighborWorks® organization
board treasurers will be trained within three years of the development and launch of this
new course in 2004.

D. Community Leadership Institutes (CLIs)

The NeighborWorks® Community Leadership Institute is a regional training conference
that strengthens the skills and participation of neighborhood residents that live and work
in neighborhoods served by Neighborhood Reinvestment and its network. One
Community Leadership Institute will be conducted in FY 2006. Each CLI hosts
approximately 400 present and emerging community resident leaders, many of whom are
low- and moderate-income actual or potential first-time homebuyers. Over 50 percent of
those participating in Community Leadership Institutes are ethnic minorities. Many of
the workshops help these leaders prepare themselves and others to develop their personal
and community assets, become homeowners, and build healthier, safer and more vibrant

In FY 2006, Neighborhood Reinvestment expects to obligate $14,779,000 or 12 percent
of available funds to train and inform members of its network and the housing and
community development field.

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FY 2006 Budget Justification
                 FY 2006 Justification Compared to FY 2005 Estimate
                                     In Thousands

                                           FY 2005             FY 2006        CHANGE
USES OF FUNDS                              Estimate          Justification      $    %
Compensation                                      $5,515             $5,890  $375   7%
Travel                                               624                624     0   0%
Professional Services                              2,605              2,344 (261) -10%
Conferences and Workshops                          1,125                962 (163) -14%
Occupancy                                            636                686    49   8%
Other Operating Costs                              1,693              1,693     0   0%
       Subtotal Operating Costs                   12,198             12,199 1,000  >1%
Grants                                             2,580              2,580     0   0%
       Total                                    $14,778            $14,779 $1,000  >1%

The expenses for this functional activity are likely to increase in FY 2006 primarily based
on typical rising costs and nominal increase in contact hours and professional certificates.
Some savings in operating costs will be achieved due to the timing of one community
leadership institute in relation to the fiscal year.


Research will continue to implement the Corporation’s data collection surveys, which
include four quarterly production surveys for all of the network organizations, four
quarterly surveys for the Campaign for Home Ownership, and an annual survey.
Utilizing Web technology, the results of the surveys and data analysis are widely
distributed within the Corporation and made available to network organizations.

Development and Communications
To increase the visibility of the NeighborWorks® network and increase private-sector
resources for NeighborWorks® organizations, the Corporation will focus on the
NeighborWorks® brand and ways to transform the brand from an underused term to a
valuable asset.

The multiyear strategy has a two-part foundation: (1) steadily building the brand through
continuous and consistent use by all organizations in the NeighborWorks® system and (2)
activating the brand and increasing its value through enhanced visibility efforts.

Three areas for building the brand will be the focus of FY 2005 activity:

•   transitioning from Neighborhood Reinvestment Corporation to the trade name
    NeighborWorks® America (as approved by the Corporation’s board of directors) and
    applying the brand to all of the Corporation’s products and services;

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FY 2006 Budget Justification
•   extending the eligible uses of the NeighborWorks® brand to chartered-member
    organizations in the network and helping to build their capacity to market their
    organizations to partners, supporters, customers and other important audiences. This
    includes licensing local chartered member organizations to use NeighborWorks® in a
    local trade name (e.g., NeighborWorks® of Anytown), if they choose to do so and
    conform to certain guidelines;

•   helping local organizations integrate the NeighborWorks® identity with their own,
    including efforts to meet minimum standards for the use of the NeighborWorks®
    identity on business communications materials such as letterhead, Web sites and fact

In activating the brand, the Corporation will step up its media outreach, public awareness,
and special event efforts (such as National NeighborWorks® Week) in order to increase
the frequency, volume and impact of the NeighborWorks® brand.

The Corporation has established two goals to measure its success at attracting new
private-sector resources to the NeighborWorks® network. The first goal is that resource
development activities will generate $3 million in new cash or in-kind support for
network activities and organizations. The second goal is to expand the variety of funding
sources by securing at least two commitments in excess of $500,000 each from new
partners to the network. In FY 2004, the Corporation established its first partnership with
a member of the mortgage insurance industry: Mortgage Guaranty Insurance
Corporation (MGIC). MGIC will provide $375,000 to support the NeighborWorks®
Center for Homeownership Education and Counseling over a three-year period.

Efforts to increase the visibility of the NeighborWorks® network among key audiences
continue to shape the menu of print and electronic publications that the Corporation
publishes as well as the products and services that the division offers corporate- and
network-wide. In fiscal year 2005, core content found in the Corporation’s signature
publications, bright ideas (quarterly) and the Annual Report will continue to highlight the
successes and innovations pioneered by organization throughout the NeighborWorks®
network, rendering recognition of network accomplishments to vast audiences. Online
access to these and other publications will be maintained.
Other visibility efforts will continue to bring closer alignment to all components under
the NeighborWorks® System by using the NeighborWorks® identity on all
communication pieces originating with corporate staff and some items initiated by
Corporation network and affiliated organizations. In FY 2004, the division began
concerted marketing of the NeighborWorks® brand and developed the tools, such as
graphics and text elements, to enable corporate and network staff to use the
NeighborWorks® identity appropriately and consistently. This will continue in FY 2005,
with the completion and dissemination of the tools, guidelines and standards for use, as
well as the creation of a “Marketing Center” on the Web site from which network
organizations and corporate staff can access these tools electronically.

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Working in tandem with print publishing to accomplish the Corporation’s strategic
priorities, the public Web site,, continues to offer a convenient and popular venue
for our key audiences to access a wide assortment of information about the
NeighborWorks® System. Efforts in 2004 were directed toward the redesign of all major
sections of the site to present a consistent, unified look. Web site goals for fiscal year
2005 include improved search capabilities on the public site, the redesign of the
members-only NeighborWorks® Web section to make it more resource-rich and useful for
affiliate organizations, and the addition of discussion boards on both the public and
members’ sites.

FY 2005 Training Goals

    •   Provide 200,000 contact hours of successful community development training to
        more than 11,000 housing and community-development practitioners.
    •   Provide 6,100 professional community development and housing training
        certificates in Home Ownership and Lending, Housing Construction and Real
        Estate Management, Nonprofit Management and Leadership, Community
        Economic Development, Community Building, and Neighborhood Revitalization.
    •   Grow the NeighborWorks® Center for Home Ownership Education and
        Counseling into the premier provider of home ownership education and
        counseling training and certification to individuals and organizations around the
    •   Assess the results of the first on-line Training Impact Evaluation conducted in
        August, 2004, which will evaluate the degree to which NeighborWorks® Training
        Institute (NTI) training is having a positive impact on training graduates, their
        organizations, and their communities. Draw conclusions about making
        improvements to the Training Institute programs based on the results. Design and
        implement changes as needed.

    •   Train at least 100 board chairs and other board members in comprehensive board
        oversight and 80 board treasurers in financial management and oversight at NTI.
        Conduct a successful NTI symposium entitled “Unleash the Power of Your
        Board: Rejuvenate and Realize Your Board’s Optimal Potential” at the December
        2005 NeighborWorks® Training Institute, engaging more than 150 experts and
        practitioners from around the country in discussions about cutting edge practices
        and problem solving.
    •   Implement the second round of Achieving Excellence in coordination with
        Harvard University – 42 new executive directors participating in the program
        (paying $5,000 toward cost of the program), having identified and making
        significant progress towards achieving organizationally transforming performance
    •   Provide 25 organizations (25 community-development executive directors and 25
        board chairs) a new organization leadership succession Contemporary Issues

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FY 2006 Budget Justification
        program with the University of Maryland to help these organizations with their
        leadership succession planning.

    •   Train at least 150 Native American community-development practitioners in four
        new Native American homeownership-related, community development courses
        offered at NTI with funding support from Wells Fargo Foundation.

In FY 2005, the NeighborWorks® Training Institutes will be held in New Orleans,
Louisiana; Washington, D.C.; Minneapolis, Minnesota; and Boston, Massachusetts. One
Regional Training Institute focusing on the specific training needs and issues most
pertinent to the Rocky Mountain and Texas region will be held in Denver in February of

To strengthen the skills of local community residents in planning and effecting the
revitalization of their communities, the Corporation will provide two regional
Community Leadership Institutes for about 600 residents each Institute. These regional
institutes provide customized technical assistance and training to local residents and
boards who work with our NeighborWorks® organizations. These events provide
residents skills and strategies to build civic engagement in their communities and make
their neighborhoods more vibrant, safer and healthier places to live.


Research completed the administration of the Corporation’s data collection surveys
including four quarterly production and Campaign surveys, and the 2002 annual surveys.
The results are used by the Corporation for production planning and risk assessment. In
2004, Research also collected, reviewed and verified HUD’s Form 9902 data from 91
affiliated network members pertaining to housing counseling grants.

Development and Communications

In FY 2004, more than 40,000 people, including 23,000 volunteers, participated in
National NeighborWorks® Week 2004. Two hundred and ten NeighborWorks®
organizations held more than 300 wide-ranging events, including home repair and rehab
projects, painting and landscaping projects as well as trainings and home-ownership fairs.
As it was in 2003, Citibank was the largest single private-sector sponsor of events.
Through their Foundation and Corporation, Citibank contributed at least $20,000 each to
13 participating NeighborWorks® organizations. These impact grants will be used to
support local program activities beyond NeighborWorks® Week. In addition to supplying
materials, volunteer labor and financial support as individual companies, the members of
the NeighborWorks® Insurance Alliance, composed of some of the largest insurance
providers in America, jointly provided a $50,000 contribution to support organizations
participating in NeighborWorks® Week. The week’s activities positively impacted more
than 600 communities, improved 7,500 homes and touched more than 28,000 families.

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NeighborWorks® organizations reported that they benefited from National
NeighborWorks® Week in the following ways:

    •   98 percent increased their visibility as an asset to their communities;
    •   81 percent received media attention;
    •   100 percent strengthened relationships with existing partners;
    •   88 percent built relationships with new partners; and,
    •   49 percent generated revenue for projects later in the year.

The Corporation developed a comprehensive NeighborWorks® marketing and
communications plan with the goal to raise the network’s visibility and thus attract
increased resources and investment. These strategies included gaining board approval for
the Corporation’s transition to the NeighborWorks® America trade name; organizing a
“doing business as” (D/B/A) project wherein local NeighborWorks® organizations will be
able to do business as “NeighborWorks® of _____”; an enhanced “NeighborWorks®”
presence at conferences and/or tradeshows as exhibitors and/or presenters; and increased
partnership recognition activity. Commitment to the special award event for resident
leadership (Dorothy Richardson Award) remains strong.

The 2004 Annual Dorothy Richardson Award to residents who have distinguished
themselves in their efforts to improve their communities, generated media coverage in all
eight recipients’ home markets, including radio, TV, and at least two print articles in each
market. The winners were from Norcross, Georgia; Staten Island, New York;
Providence, Rhode Island; Houston, Texas; Fort Wayne, Indiana; Los Angeles,
California; Kansas City, Kansas; and Charlottesville, Virginia.

Among other media outreach, the Corporation:

    •   Launched the NeighborWorks® Center for Homeownership Education and
        Counseling, which attracted national and trade media interest, including from
        Dow Jones News Service;
    •   Received notice in a New York Times article on property-casualty insurance; and,
    •   Generated coverage of the NeighborWorks® Advanced Practitioner Program in
        the Jacksonville Financial and Daily Record, the Philadelphia Tribune, the
        Philadelphia News Observer and Oregon’s Bend Bugle.

In FY 2004, Neighborhood Reinvestment helped facilitate the participation of two
NeighborWorks® organizations in Homeownership Month Expo events supported by the
U.S. Department of Housing and Urban Development. The organizations are
Neighborhood Housing Services of Southern Nevada and Miami-Dade Neighborhood
Housing Services. Both organizations provided consumer information and referral
services to hundreds of families attending the HUD events in Las Vegas and Miami.
They were approached by numerous other nonprofit organizations, as well as real-estate
and lending institutions, regarding potential partnerships and access to services.

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FY 2006 Budget Justification
The Corporation’s reach and impact continues to expand through print and electronic
publishing efforts. In addition to the 2003 annual report and the ongoing production of
its quarterly magazine, bright ideas, the Corporation produced a number of specialty
publications that address cutting-edge topics and reflect the innovations taking place in
the community-development field. Among the special publications were several from the
Multifamily Initiative, including: America’s Working Communities and the Impact of
Multifamily Housing; The Vitality of America’s Working Communities: Meeting the
Local Challenges to Multifamily Housing; and Changing Minds, Building Communities:
Advancing Affordable Housing through Communications Campaigns. Other publications
included Neighborhood Reinvestment’s 2004 Guide to Technical and Financial
Assistance and Home Matters, a consumer-oriented, four-page newsletter with localized
inserts produced by NeighborWorks® network organizations. These publications were
also made available on the corporate Web site,

Additionally, Neighborhood Reinvestment’s online catalog offers a vast repository of
publications and videos that contribute significantly to the knowledge base of accessible
information on a wide range of community-development and affordable-housing topics
and issues. The nearly 100 titles reach thousands of practitioners and other professionals
across the field, providing significant opportunities for knowledge-sharing internally and
among NeighborWorks® network organizations.

The Corporation’s Web site,, averaged more than 1.1 million “hits” per
month in FY 2004, compared to 668,000 the previous fiscal year, indicating a substantial
increase in overall site activity. Average monthly visits increased 44 percent from 39,500
to 57,000. The primary audience is community-development practitioners who use the
site to access training resources, publications, and best practices from Neighborhood
Reinvestment and affiliated NeighborWorks® organizations.

All major sections of the Web site were redesigned in FY 2004 to make the content more
accessible, uniform, and targeted to various audiences, including national partners, the
news media, researchers, and job seekers. A new “Fact Sheet” database provides site
visitors with an in-depth look at the activities of each of the 235 NeighborWorks®
A new best practices database called “Winning Strategies” was added to the site through
a grant from MetLife. Winning Strategies describe and record the innovative approaches
that NeighborWorks® organizations use in revitalizing neighborhoods and serving
families, while offering community-development practitioners an opportunity to replicate
this work in the field.

Each best practice is generated by one of six national NeighborWorks® programs:

    •   NeighborWorks® Campaign for Home Ownership

    •   NeighborWorks® Multifamily Initiative

    •   NeighborWorks® Rural Initiative

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FY 2006 Budget Justification
    •   NeighborWorks® Insurance Alliance

    •   NeighborWorks® Resident Leadership Initiative

    •   National NeighborWorks® Week

In FY 2004, the Corporation was able to attract additional private-sector resources, thus
maximizing the impact of its federal appropriations. These additional resources included:

•   Bank of America
    Bank of America made a one-year commitment in excess of $350,000 to support the
    NeighborWorks HomeOwnership Centers® and two place-based trainings – one in
    Atlanta and one in Miami. Bank of America also co-sponsored the August
    Symposium entitled “Homeownership Education and Counseling: Where Do We Go
    From Here?”

•   Citibank
    In March, Neighborhood Reinvestment secured $317,500 from Citibank’s
    Corporation and Foundation in support of program grants and NeighborWorks® Week
    2004 events. Thirteen organizations in five states received funding.

•   National Association of Realtors
    In June, Neighborhood Reinvestment signed a four-year, $100,000 agreement with
    the National Association of Realtors to support the NeighborWorks® Center for
    Homeownership Education and Counseling.


In FY 2004, Neighborhood Reinvestment provided over 203,000 training contact hours
for 11,000 participants at Training Institutes and other training events.

In FY 2004, Neighborhood Reinvestment hosted four national NeighborWorks® Training
Institutes that grew dramatically in size from an average attendance of about 1,000 per
NeighborWorks® Training Institute (NTI) in FY 2003 to more than 1,400 per NTI in FY
2004. The Training Division also hosted two Community Leadership Institutes (each
attended by 500 people), an Executive Directors Symposium for nearly 200 executive
directors from NeighborWorks® organizations; a Peer Forum for 21 new executive
directors; 12 place-based regional trainings; and a host of staff-development activities.

The NeighborWorks® Training Institute continues to listen to participants’ needs and
responds to changes in the housing and community-development environment by revising
and expanding course offerings. In FY 2002, Neighborhood Reinvestment developed
and offered more than 20 new courses, including the following new courses of particular

            Fundamentals of Board Oversight and Governance (with BoardSource)

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FY 2006 Budget Justification
            Financial Management and Oversight for Board Treasurers
            Design and Development for Single Family New Development
            Using GIS to Understand, Evaluation and Plan
            Housing Counseling in Spanish (Consejeria para La Compra de Vivineda)
            Financial Fitness (Literacy) in Spanish (Aptitud Financiera)
            Creating a Culture of Evaluation for EDs and Board Chairs
            Success Measures: Approaches and Tools: Using Participatory Evaluation to
            Demonstrate Results.

Training Institute Symposia
In addition to training courses, Neighborhood Reinvestment hosted five one-day
symposia involving experts, researchers, funders and practitioners from across the
country interested in cutting-edge topics and issues in the housing and community
development field. More than 1,000 people attended Neighborhood Reinvestment
Symposia in FY 2004 on: “Rural Community Economic Development,” “Achieving
Excellence for Seasoned Executive Directors,” “Using Communications Campaigns to
Promote Affordable Housing,” and “Home Ownership Education and Counseling:
Where to from Here?”

Achieving Excellence Program
Forty-five seasoned executive directors of community-based development organizations
from around the country have participated in Neighborhood Reinvestment’s innovative
“Achieving Excellence Program” conducted in coordination with Harvard’s Kennedy
School of Government and Douglas K. Smith, the author of such books as Make Success
Measurable and The Wisdom of Teams. Participating executive directors lead programs
in lending, housing development, property management, resident services, job training,
commercial and industrial development, and neighborhood revitalization. The majority
of these executive directors have headed their organizations for more than 10 years, and
many for more than 20.

Each executive director undertook a transformative organizational and personal challenge
as well as a strategy with clear and measurable outcomes. The 18-month program
included three sessions of three or four days each at the Hauser Center for Nonprofit
Organizations at Harvard University on adaptive leadership and strategic change. It also
featured intensive professional coaching by a team of executive leadership consultants
who helped the participants apply new frameworks, approaches and strategies to their
performance challenge.

As noted previously, the results of the first round of the program, which concluded in
February of 2004, were extraordinary. While executive directors set a wide range of
goals that mirrored the variety of challenges confronting their organizations, at least two-
thirds of the organizations achieved results which, when added up, include:

    •   More than 28,000 additional people helped, including an increase of more than
        5,500 residential units (owned and rented);

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FY 2006 Budget Justification
    •   Nearly 150,000 square feet incremental gain in commercial space brought to poor
        neighborhoods and communities;

    •   More than $31 million in improved income which, spread across the cumulative
        operating budgets of all 43 organizations represents a 20 percent improvement;

    •   Nearly a half billion dollars of new capital attracted to the work done by these
        organizations; and,

    •   Hundreds of critical new relationships with institutions and other partners who are
        “getting involved” in the meeting the challenges of affordable housing and
        community development.

In addition, more than 90 percent of the executive directors who participated in the
program identified significant specific new skills, strategies and tools that they are using
and that are having a powerful impact on their organizations. In addition, nearly three
out of four staff and board members in these organizations – people who did not formally
participate in the program – stated that they too learned important new strategies, tools
and practices that are having a significant positive impact on their organizations and the
achievement of their mission.

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FY 2006 Budget Justification
X. Secondary Market

                                        Dollars in Thousands

                                         FY 2005    FY 2006      FY ‘05 EST./
                                          EST.       JUST.       FY ‘06 JUST.

         Total Functional Expenses         $8,084      $8,250       $166        2%

         Total Uses of Funds             $118,492    $120,650      $2,158       2%
         Percent of Funds                     7%          7%

         GOALS: ($/ thousands)
         Housing loans purchased          $70,000     $75,000     $5,000        7%
         Cumulative loan activity        $723,000    $798,000    $75,000       10%
         Cumulative investor
         agreements                      $757,000    $812,000    $55,000        7%


Neighborhood Reinvestment’s partner in the NeighborWorks® System, Neighborhood
Housing Services of America (NHSA), and its affiliates play a critical role in meeting the
capital needs of the NeighborWorks® network. NHSA’s loan purchases fill gaps in local
loan resources by bringing low-cost, flexible, private-sector capital and innovative loan
products to network members. Resources from NHSA replenish local loan funds, which
contribute toward more than $l00 million per year in the most difficult local lending by
NeighborWorks® organizations, which in turn leverages more than $l billion per year in
local investment across the NeighborWorks® network.

NHSA’s flexible loan products help meet the financing needs for housing rehabilitation,
home ownership, and real-estate development. The FY 2006 goal for housing loans to be
purchased and originated is $75 million – including loans for rehabilitation and secondary
financing, non-recourse first mortgages, multifamily permanent financing, interim
development financing, and direct loans to NeighborWorks® organizations.

In FY 2006, NHSA will continue to secure new social investments to purchase loans that
may not meet normal credit standards from NeighborWorks® organizations’ program
areas. These purchases recycle funds into underserved communities and expand local
lender participation in NeighborWorks® program areas. Purchases are made in
accordance with lender agreements and loan sale and servicing agreements with
NeighborWorks® organizations.

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FY 2006 Budget Justification
NHSA assigns most loan servicing to sub-servicers, works with local NeighborWorks®
organizations to service the loans that they sell to NHSA with recourse, and directly
services the remaining loans. NHSA also securitizes some first mortgage loans through
Fannie Mae and Freddie Mac. The NHSA group’s loans receivable as of the end of
September 2004 totaled $266,830,920. In addition to these loans receivable, NHSA has
oversight on $45,857,249 in loans purchased and then securitized through Fannie Mae
and Freddie Mac, some with recourse.

Neighborhood Housing Services of America’s Loan Products and Services

NHSA’s loan products and services in support of the NeighborWorks® network include
the following:

•      NHSA purchases loans which generally cannot be sold in the conforming markets
       from NeighborWorks® organizations and their lending partners. These include
       highly leveraged first mortgages and more difficult-to-place second mortgages.

•      NHSA originates loans to NeighborWorks® organizations – multifamily
       permanent loans, interim development loans, and direct loans to capitalize local
       revolving loan funds within neighborhood revitalization program areas.

•      NHSA services or contracts servicing for the loans purchased by NHSA and uses
       dynamic credit management processes to keep borrowers in homes and minimize
       foreclosure losses.

•      NHSA develops loan products tailored to unique local circumstances in support of
       NeighborWorks® organizations’ program activities. This includes current work
       on the development of uniquely sustainable business models to ensure a strong
       borrower support system for the life of the loans that NHSA purchases.

•      NHSA raises loan capital for affordable housing financing. With the generous
       support of its investors, NHSA has raised more than $611 million in long-term
       financing at below-market rates. A 2002 study of $522 million in loans estimated
       savings to borrowers over the nonconforming market financing alternatives were
       approaching $100 million and could exceed $300 million over the life of the

•      NHSA provides education and technical assistance regarding use of its loan
       products. It hosts three or more customer service workshops annually and
       provides on-site technical assistance to NeighborWorks® organizations in building
       mortgage loan programs.

•      NHSA creates strategic business alliances in collaboration with local
       NeighborWorks® organizations and in support of their business objectives and
       those of local governments, lenders and investors. These alliances contribute both
       grant dollars and below-market-rate loan dollars in support of the affordable

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FY 2006 Budget Justification
       housing and neighborhood revitalization objectives of the NeighborWorks®

NHSA Offers the Following Specific Loan Products:

    • Recourse Loans
      These are first and second mortgages the conventional market (including sub-
      prime lenders) would not normally finance. NHSA purchases these recourse
      loans at par. Eligible loans include loans used for rehabilitation of owner-
      occupied, one-to-four-unit buildings; first mortgages on distressed, owner-
      occupied properties with one to eight units; and secondary financing for home-
      ownership. Rehabilitation loans routinely exceed the appraised collateral value
      of the property. The recycling of these rehabilitation funds is crucial to
      neighborhood restoration efforts. Loan packages may be any number or dollar
      amounts. Loans are made to fit the borrower's ability to repay.

        Interest rates on loans sold to NHSA historically have approximated the overall
        average yield of the NeighborWorks® organization's revolving loan fund
        portfolio. In cooperation with Neighborhood Reinvestment, NHSA is continuing
        efforts begun in FY 2003 to carry out strategies to address local needs to sell
        down payment assistance loans at yields below NHSA’s cost of funds. To be
        eligible for sales, NeighborWorks® organizations must have a loan sale and
        servicing agreement in place. NHSA’s resources are allocated on a forward
        commitment basis.

    • Non-Recourse First Mortgage Program
      Through a partnership with local financial institutions, NHSA offers
      homeownership loans for NeighborWorks® clients. The program offers
      homebuyer loans to qualified borrowers with income levels and interest rates
      established by NHSA to meet needs in underserved communities. Debt ratios
      and loan-to-value ratios have been tailored to fit the needs of the
      NeighborWorks® communities. Loan terms are flexible and fall outside the
      criteria of normal secondary markets. NHSA’s resources are allocated on a
      forward-commitment basis.

    • Permanent Multifamily Financing
      NHSA also provides financing for multifamily properties owned and managed by
      NeighborWorks® organizations. First mortgages are available for properties
      containing between five and 50 units, with larger properties considered on a case-
      by-case basis. Interest rates approximate market rates. Organizations applying
      for permanent financing through NHSA must meet established NHSA criteria for
      underwriting, organizational capacity, management and financial systems.

    • Interim Development Financing
      Through agreements with Fannie Mae and the National Cooperative Bank
      Development Corporation (NCBDC), NHSA offers NeighborWorks®

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FY 2006 Budget Justification
        organizations access to credit lines for start-up financing of real estate
        development projects. Short-term bridge loans for property acquisition,
        revolving loans for acquisition or predevelopment financing, revolving credit
        agreements, or lines of credit for predevelopment expenses prior to construction
        are available under this program.

    • Direct Loans to NeighborWorks® Organizations
      Through its community development financial institution affiliate, NHSA-CDFI,
      NHSA provides direct financing to NeighborWorks® organizations to capitalize
      local loan funds for home-improvement loans and down-payment and closing-
      cost assistance loans to qualified borrowers. Each NeighborWorks® organization
      is responsible for establishing local underwriting criteria, interest rates and terms
      within guidelines established by NHSA-CDFI and its investors. These loans are
      committed on a forward commitment basis.


In FY 2006, Neighborhood Reinvestment intends to obligate $8.25 million to support the
core work of the secondary market. A $6.25 million administrative grant to NHSA will
help to cover the cost of operations and development of additional social investments. In
addition, a $2 million capital grant will help generate $75 million in new loan activity
with the NeighborWorks® network.

Grants to NHSA leverage the participation of conventional lenders and social investors
into increasing support of underserved communities. A new focus of NHSA’s work
during the decade is support of the President’s Initiative on Minority Homeownership.

In support of the President’s Initiative, by the end of the decade NHSA intends to
increase by 50 percent the number of lenders enlisted to serve NeighborWorks® program
areas. Through at least 170 formal agreements, each lender will have access to specially
designed, below-market-rate loan products financed by NHSA’s investors. Lenders will
increase the number of minority borrowers that they assist in becoming homeowners
through the use of NHSA’s loan products. Qualified borrowers will have completed
homebuyer-counseling programs offered by NeighborWorks® organizations. This work
is part of an expected $5 billion in market-rate investments and local government
expenditures in underserved, mainly minority, NeighborWorks® program areas during the

With the help of social investors, NHSA is facilitating lender use of the conventional
secondary markets for non-conventional loan products. NHSA has negotiated a pilot
with Fannie Mae to swap the first $l00 million of one of NHSA’s first mortgage loan
products in exchange for mortgage-backed-securities that NHSA is placing with investors
as part of its $750 million investment initiative. The loan product is called MaxValue
and is available to NHSA’s lending partners. All parties will study performance on the
specially designed loan criteria and program supports used by NHSA for the pilot
product, with the expectation of success and continuation of the program.

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FY 2006 Budget Justification
NHSA’s two additional multiyear initiatives, Sustainable Business Models and Systems
Upgrades, will be continued in FY 2006. The new business models described in the
following sections will be continued and evaluated in relation to their goals of creating a
sustainable direction for community-development lending and a higher leverage of
federal grants.

In addition, NHSA will continue its multiyear systems upgrade initiative with a focus on
refining loan origination and loan servicing systems in support of secondary financing for
borrowers who cannot meet normal credit standards. The systems will work in tandem
with mission objectives of being better positioned to serve lower-income borrowers who
have been victims of or are threatened by predatory lending practices.


NHSA’s loan activity goals for FY 2005 total $70 million.

To keep pace with the ever-increasing capital demands of the NeighborWorks® network,
in FY 2003 NHSA embarked on three major, multiyear initiatives that are allowing it to
better support and expand the flow of affordable capital and the types of loan products
that NHSA could make available to the NeighborWorks® network. These initiatives
include a $750 million investment initiative; an upgrade of loan origination and loan
servicing software systems; and development of sustainable business models for NHSA
and NeighborWorks® organizations.

    NHSA’s Investments and the President’s Minority Homeownership Initiative:
    • In June 2002, NHSA announced a five-year $750 million investment initiative to
      assist more than 12,000 households achieve or maintain affordable housing in
      support of strategies to upgrade whole neighborhoods. The first $100 million of
      the $750 million initiative is being subscribed by investors at an annual cost-of-
      funds to NHSA of 5 percent, which, at announcement, was close to 175 basis
      points below the conforming mortgage market rate. In this first phase of the
      investment, investors are receiving mortgage-backed securities guaranteed by
      Fannie Mae. This investment also supports the President’s Minority
      Homeownership Initiative.

    Upgrade of Loan Origination and Loan Servicing Systems:
    • NHSA is upgrading its loan origination and loan servicing systems to manage
       comfortably the greatly increased volume of loan purchase and origination
       activity that is expected over the next several years. Upgrades and conversions of
       NHSA’s loan servicing systems were completed in FY 2003 and FY 2004. These
       upgrades and conversions are first steps in a larger upgrade of NHSA’s loan
       management systems.

    •   In FY 2005, NHSA will continue to use its State Farm grant to complete and
        implement an e-commerce Web site that will provide the ease and speed of loan

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        approvals needed by the NeighborWorks® network to combat predatory lending.
        NHSA will use its experience with the e-commerce site to help identify and
        evaluate the most appropriate upgrades to its loan management systems.

    Sustainable Business Models:
    • The third important multiyear initiative that NHSA has undertaken is the
       development of sustainable business models for the collaborative work of NHSA
       and NeighborWorks® organizations. In FY 2005, NHSA will continue use of the
       new business models described in FY 2004 results. A one-time capital grant of
       $2 million from Neighborhood Reinvestment that was provided in the fourth
       quarter of FY 2004 will support the expanded goal of leveraging second mortgage
       activity by accessing the capital markets via rated securities. Further, NHSA’s
       new e-commerce site will offer new opportunities to NeighborWorks®
       organizations and NHSA to increase loan activity income in support of operating
       budgets. All the new business models strengthen the long-term capacity of
       NHSA and the participating NeighborWorks® organizations.

    •   In providing services, NHSA will continue to serve the NeighborWorks® network
        broadly. Oversight provided by NHSA’s board of directors will assure that this
        and other objectives, such as adequate reserve levels and loan performance,
        continue to be met and surpassed.

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FY 2006 Budget Justification

NHSA exceeded its FY 2004 loan activity goal of $65 million with $69,620,000 in loan
purchases and originations. NHSA also made substantial progress on its three major
multiyear initiatives to expand the flow of affordable capital and loan products to the
NeighborWorks® network. These initiatives include a new $750 million investment
initiative; an upgrade of loan origination and loan servicing software systems; and
development of sustainable business models for NHSA and NeighborWorks®

•   NHSA’s Investments and the President’s Initiative on Minority Homeownership:
    In support of the President’s Initiative on Minority Homeownership, NHSA pledged
    multiyear goals of raising $750 million in new social investments and increasing the
    number of lenders enlisted, minority borrowers served and grant funds raised. By
    September 30, 2004, NHSA had met the pace set for each of its goals, which
    included reaching 55 percent of its five-year $750 million investment initiative goal.

•   Upgrade of Loan Origination and Loan Servicing Systems:
    In FY 2004, NHSA continued its multiyear systems initiative geared to upgrade its
    loan origination and loan servicing systems to enable NHSA to manage comfortably
    increased volumes of loan purchase and origination activity over a five-year period.
    In FY 2004, NHSA began implementation of LOANbase for Windows multiple
    companies configuration (the separation of the data base into small data files). This
    allows NHSA to process loans faster and more efficiently. NHSA also began
    implementation of a data warehouse system (an enterprise data repository and
    business analytical tool). This will allow improved management reporting and data

    In FY 2004, NHSA used part of a $1 million grant from State Farm to build and beta
    test a new state-of-the-art e-commerce Web site. The site’s capacity for ease and
    speed in loan approvals will help combat predatory lending.

    Also in FY 2004, NHSA continued development and annual testing of its Disaster
    Recovery Program. Testing at the recovery service vendor’s facility successfully
    restored all core business applications.

•   Sustainable Business Models:
    The third important initiative that NHSA is undertaking is the development of
    sustainable business models for the collaborative work of NHSA and
    NeighborWorks® organizations. The models are being built on two key concepts.
    The first concept is a build-up of grant funds to subsidize second mortgages at
    interest rates below NHSA’s cost of funds. The second concept involves building a
    fee into first mortgages that is returned to NeighborWorks® organizations for the life
    of the loan in order to help pay for the borrower support system that the
    organizations provide.

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FY 2006 Budget Justification
    NHSA’s FY 2004 loan activity used the new business models. Approximately $18
    million in low-yielding second mortgages were purchased from NeighborWorks®
    organizations at par. The primary objective of the sales for many of the
    organizations was to recycle funds into Down Payment Assistance pools in support
    of the President’s Initiative on Minority Homeownership. The subsidy for these loan
    sales was funded from Neighborhood Reinvestment’s grant to NHSA to keep
    NHSA’s balance sheet whole, which leverages the related first mortgage activity
    through the second mortgage subsidy. This approach enables NHSA and the
    NeighborWorks® organizations to generate increasing loan activity with limited
    federal grant support.

    NHSA also purchased $36 million in first mortgages that will yield back a 0.25
    percent fee to local NeighborWorks® organizations to help support a borrower
    support system for the life of the loan. The 0.25 percent fee on these loans will help
    to sustain operations of the NeighborWorks® organizations and help to sustain the
    exceptional quality of NHSA’s loan portfolio.

    In the design of its new e-commerce Web site, NHSA built in a wide range of
    products and services that will contribute to income opportunities for NHSA and the
    NeighborWorks® organizations.

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FY 2006 Budget Justification
Y. Administration In Washington, D.C.

                                        Dollars in Thousands

                                        FY 2005    FY 2006     FY ‘05 EST./
                                         EST.       JUST.      FY’06 JUST.
            Total Functional Uses        $10,860    $11,004      $144    1%
            of Funds

            Total Uses Funds            $118,492   $120,650      $2,158    2%
            Percent of Funds                 9%         9%

        In accordance with the National Affordable Housing Act (P.L. 101-625),
        Neighborhood Reinvestment’s administrative expenses are consistently held to
        less than 15 percent of expenditures. These expenses include the offices of the
        executive director, the chief operating officer, the treasurer and the general
        counsel as well as the finance, budget, information management, public policy
        and legislative affairs, human resources, and corporate facilities units.

        The Office of the Executive Director is responsible for overall strategic direction
        and administration of programs and activities as prescribed by the board of
        directors, and for the implementation of policies to meet corporate and
        congressional goals. The executive director provides direction to officers and
        employees, represents and speaks for the Corporation in dealing with diverse
        constituencies, and provides relevant information to management, staff and
        affiliates. The executive director’s office also serves as liaison between the
        Corporation and the executive and legislative branches of the federal government,
        as well as between the Corporation and the NeighborWorks® network. The
        Treasurer monitors the overall financial condition of the Corporation. The
        Internal Audit Director reviews, analyzes and appraises the Corporation’s
        financial and non-financial operations.

        The Chief Operating Officer oversees the day-to-day operations of the
        corporation, ensuring that all activities and functions are working smoothly across
        business lines, and that duplication and inefficiencies are eliminated. The chief
        operating officer and executive director work together to align functional
        responsibilities with strategic priorities, ensuring that all staff are working in
        support of common plans and objectives.

        The General Counsel provides advice, counsel and representation to the
        management and staff of Neighborhood Reinvestment. Major functions include
        interpreting statutes that may affect the Corporation (such as Equal Employment
        Opportunity (EEO), the Freedom of Information Act and the Sunshine Act);

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FY 2006 Budget Justification
        representing the Corporation in litigation and contract negotiations; reviewing
        legislative and administrative proceedings; and aiding in training and
        informational programs for staff and NeighborWorks® organizations on legal
        matters affecting housing and community development. The functions of the
        Secretary of the Corporation are also located within the general counsel’s
        office. These functions include arranging board of directors and committee
        meetings, maintaining board minutes and other corporate minutes, and reviewing
        board resolutions. The unit seeks to resolve all legal issues in the best interests of
        the Corporation in accordance with applicable law.

        Finance assures that the financial activity of the Corporation is properly
        maintained and recorded. Other functions include payroll, accounts payable,
        accounts receivable, corporate travel, and billings. Grant accounting is performed
        in conjunction with budget and grants and contracts management. The
        department prepares internal financial reports for the Corporation. Each year, the
        unit seeks to receive an unqualified external audit with no major issues raised in
        the reports from certified public accountants. Clear and accurate financial reports
        will continue to be developed and closely monitored. Internal control will
        continue to be analyzed.

        The budget office prepares and monitors the Corporation’s annual budget. In FY
        2005, responsibility for managing the Corporation’s restricted grant revenue from
        government agencies, corporations and foundations was transferred to the budget
        office (from grants and special projects department). In addition, this office takes
        the lead in the preparation and submission of reports to Congress and OMB under
        the Government Performance and Reporting Act (GPRA).

        Information Management is responsible for the planning, design,
        implementation, management, and support of Neighborhood Reinvestment
        Corporation’s information technology resources. Information management:

        •     Provides services to identify and efficiently organize the data required to
              support the Corporation’s business activities;

        •     Designs, develops and supports software that allows users to manage the
              information they need and to access the information in a useful format to
              support the Corporation’s business activities; and

        •     Provides, supports and assists users in using the hardware, software and
              communications needed to deliver the information required to support
              business activities.

        The geographic dispersion of Neighborhood Reinvestment Corporation’s staff and
        customers, in addition to the heterogeneous nature of computing platforms used
        by NeighborWorks® organizations, has led the information management
        department to adopt an information technology infrastructure in which the

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FY 2006 Budget Justification
        Internet and associated technologies play a key role; use of Internet technologies
        allows the department to maximize the depth and efficiency of its service
        delivery. Information management will continue to strengthen the technology
        infrastructure in order to effectively build information management systems and
        provide support services.

        Neighborhood Reinvestment's Office of Public Policy and Legislative Affairs
        manages the Corporation's interaction with Congress and federal agencies, as well
        as with peer organizations on public policy and Congressional issues. While
        responding to and representing the Corporation before the Administration and
        Congress, the Office of Public Policy and Legislative Affairs serves as a prime
        resource to Neighborhood Reinvestment senior managers and staff on issues
        involving public policy and legislative affairs. The Office of Public Policy and
        Legislative Affairs supports the executive director’s activities related to the
        Corporation’s annual appropriations process, including preparation of testimony
        to be given before Congress and at hearings before the Office of Management and
        Budget. The office works with Congress, the administration and federal agencies,
        and peer organizations to further advance and assist the work of NeighborWorks®
        organizations. The office tracks housing and community development-related
        legislative and regulatory proposals and/or changes, monitors relevant
        Congressional hearings, and disseminates appropriate information to Corporation
        staff and to the NeighborWorks® network.

        Human Resources provides personnel management to the Corporation,
        maintaining its benefits program, corporate insurance requirements, EEO
        reporting, employee relations, and recruitment. The department continues to
        oversee hiring and termination of employees, job descriptions, personnel policies
        and procedures, corporate benefit program and workers’ compensation and
        liability insurance programs. The unit coordinates the procedures for
        performance evaluations and merit pay increases, provides equal employment
        opportunity assistance and information, and maintains personnel files.

        Administrative Services/Corporate Facilities provide centralized support
        services such as procurement, contract management, building and office services,
        printing, telecommunications and mail room services. This group specifically
        assists with lease negotiations, build-outs or renovations and relocations. They
        oversee the corporation’s business continuity, emergency preparedness, disaster
        recovery planning and testing.

        The Grants and Special Projects department, within Field Operations division,
        is responsible for processing grants and a handles a number of special projects.
        This includes the development of grant systems and quality controls. Current
        priorities include a focus on the streamlining of grant procedures.

Neighborhood Reinvestment Corporation       96                             February 2005
FY 2006 Budget Justification

         In FY 2006, the Corporation expects to obligate $11,004,000, 9 percent of
         available funds in support of administrative functions.

                      FY 2006 Justification Compared to FY 2005 Estimate
                                          In Thousands

                                          FY 2005             FY 2006              CHANGE
USES OF FUNDS                              EST.           JUSTIFICATION           $       %
Compensation                                   $4,830               $5,159         $329   7%
Travel                                            270                   270           0   0%
Professional Services                           1,179                 1,061       (118) -10%
Conferences and Workshops                         150                   150           0   0%
Occupancy                                       1,192                 1,242          50   4%
Other Operating Costs                           3,239                 3,122       (117) -4%
       Total                                  $10,860              $11,004         $144   1%

         Overall, the Corporation anticipates that expenditures related to administrative
         functions based in Washington, D.C., will increase by 1 percent in FY 2006.

         FY 2005 GOALS

         •       Administrative costs will continue to be held at substantially less than 15
                 percent of expenditures.
         •       The office of the executive director will manage and promote the
                 Corporation in accordance with legislative mandates and prudent fiscal
                 practices, and encourage strategic public- and private-partnerships.
         •       The executive director will continue to provide strategic direction to the
         •       Information management will:
                 Continue to develop DataSync, the corporate-wide data integration effort
                 and demonstrate greater desk-top accessibility to and usefulness of data
                 contained in various data bases and applications;
                 Maintain and continue to improve the new HomeBase shared portal;
                 Improve security, reliability and effectiveness of computer system
                 architecture by thoughtful implementation of new equipment and
                 enhanced services;
                 Implement, regularly test and maintain a business continuity plan to
                 restore information management systems and data in the event of an

 •   Finance will seek an unqualified external audit with no major issues raised in the
     financial statements or OMB A-133 reports.

 Neighborhood Reinvestment Corporation        97                             February 2005
 FY 2006 Budget Justification
•   The office of the general counsel will seek to resolve all legal issues in the best
    interests of the Corporation in accordance with applicable laws.
•   Human resources will:
             Follow up on results of a staff climate survey and make recommendations
             to management, starting with the area of improved communication;
             Develop a diversity action plan with the goal to increase percentages of
             Hispanic and “other minorities” by one percent or more;
             Create greater efficiencies regarding the administration of benefits.

•   Administrative services will continue to provide centralized support services such as
    procurement, building and office services (including lease management), and printing
    and related services.
•   The Corporation will fully implement a comprehensive disaster recovery plan
    regarding the functions performed at the Washington, D.C., office, and will work
    with district offices to develop local and regional disaster recovery plans for these

    FY 2004 RESULTS

Among other achievements, the Corporation achieved the following in FY 2004:
•   Spent less than 10 percent of all obligations on administration functions;
•   Successfully consolidated the Corporation’s Boston offices;
•   Implemented an online web application for improved training event management;
•   Developed an online system for NeighborWorks® organizations to enter and update
    profile information about their organization, which is used to automatically generate
    updated “Fact Sheets” on the Corporation’s public website;
•   Deployed the new “Homebase portal” for use by all Neighborhood Reinvestment staff to
    enhance work flow efficiency and knowledge sharing;
•   Completed a compensation study that resulted in articulation of a compensation
    philosophy and recommendations for corrective action;
•   Implemented the approved recommendations of a human resources function analysis
    completed in FY 2003;
•   Conducted an employee satisfaction survey and conducted follow-up focus groups to
    improve performance in key areas of the survey.

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FY 2006 Budget Justification

                      Appropriated Funds and Other Core Revenue

                     SOURCES OF FUNDS: $2,158,000 –Two Percent

Federal Appropriation:

       FY 2005                FY 2006               Increase                Percent
       Estimate             Justification          (Decrease)

      $114,080,000          $118,000,000           $3,920,000                 3%

The FY 2006 federal appropriation of $118 million represents a 3 percent increase over
FY 2005. The FY 2005 amount includes an across-the-board rescission of .8 percent
required of all federal agencies.

Interest Earnings and Other Revenue

       FY 2005                FY 2006               Increase
       Estimate             Justification          (Decrease)               Percent

       $900,000               $900,000                  $0                    0%

In addition to interest earned on short-term cash investments, this category includes funds
returned from NeighborWorks® organizations which leave the network. These proceeds,
which can include cash and/or mortgage payments, are a return from prior year capital
grants made by Neighborhood Reinvestment to NeighborWorks® organizations. Also
included in this category are proceeds from the sale of publications. The projection for
FY 2006 remains constant with the projection assumed in the FY 2005 recommendation.

Training Registration Fees:

       FY 2005                FY 2006               Increase
       Estimate             Justification          (Decrease)               Percent

       $1,650,000            $1,750,000             $100,000                  6%

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FY 2006 Budget Justification
In FY 2006 as in FY 2005, the Corporation will earn registration fees from various
training events. The FY 2006 estimate is expected to increase by 6 percent, based on
increased participation at training events. The registration fee for a week-long institute
for members of the NeighborWorks® network is $300; the fee for individuals attending
from organizations outside of the network is $925 per week.


      FY 2005                 FY 2006                Increase
      Estimate              Justification           (Decrease)                Percent

    Unrestricted                  $0                ($387,000)                -100%
     Restricted                   $0                (1,475,000)               -100%

Based on FY 2004 results, unrestricted carry-forward is not projected in FY 2006.
Restricted appropriated funds are expected to be fully expended in FY 2005. In FY 2005,
these funds include capacity grants and professional services related primarily to the
mixed–income multifamily set-aside.



      FY 2005                 FY 2006                Increase                 Percent
      Estimate              Justification           (Decrease)                Change

    $24,895,000              $26,600,000            $1,705,000                 6.8%

FY 2006 compensation costs are projected to increase by 6.8 percent over FY 2005
(rather than the average 8 percent increases of prior years). Savings in compensation will
be achieved through a variety of methods, including a potential reduction in the approved
number of positions from 258 to 256, and a comprehensive analysis of health care
options in order to achieve significant savings in this area. This will include analyses of
different options and trends, individual, family and one-plus premium plans, co-pays, and
“shared” premiums (with staff) in the context of the Corporation’s overall compensation
philosophy and the larger environment. Other components of the compensation budget

•   Estimated salary adjustments based on the results of a recent market study;
•   A 3.5 percent pool for merit adjustments to base salaries (effective February 1);

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FY 2006 Budget Justification
•   A 1 percent pool for cash awards (not added to base salaries);
•   Taxes, include payroll taxes, workers’ compensation and state unemployment;
•   Retirement pension;
•   Life and disability insurance;
•   Relocation expenses; and,
•   Tuition reimbursement and/or staff development.

Planned savings in the health care costs will be necessary in order to offset expected
increases due to a proposed employee relocation policy, which is designed to build
greater synergy and cohesion among the Corporation’s functions by concentrating
Neighborhood Reinvestment’s presence in a few key cities, in order to better serve the
NeighborWorks® network and the broader community development field. The major
budgetary impact of this policy is presumed to occur in FY 2006.


      FY 2005                 FY 2006               Increase                Percent
      Estimate              Justification          (Decrease)               Change

     $2,877,000              $2,833,000             ($44,000)                 -2%

Travel costs are projected to decrease slightly, 2 percent less than the FY 2005 estimate,
despite likely rising costs of airfare and lodging. Management will limit employee travel
to critical visits in order to achieve a reduction in costs in this category.

Professional Services:

      FY 2005                 FY 2006               Increase                Percent
      Estimate              Justification          (Decrease)               Change

     $7,198,000              $6,485,000            ($713,000)                 -10%

This category provides funds for contracted professional service fees and expenses such
as the annual corporate financial audit, outside legal counsel and technology experts.
Some contracted individuals conduct training sessions or deliver sophisticated on-site
technical and management assistance to NeighborWorks® organizations. Other
contractors assist with program reviews of NeighborWorks® organizations or research,
write and disseminate information and special materials. The Corporation expects a
decrease from the FY 2005 levels in this category based on prior year spending patterns
and the completion of several major technology projects, including the Nstep data
collection tool, which required significant consulting fees during the past few years. The
FY 2005 budget includes nearly $300,000 in professional services costs to assist with

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FY 2006 Budget Justification
training and technical assistance related to the roll-out and implementation of Nstep.
These costs are not expected to recur in FY 2006.

Conferences and Workshops:

      FY 2005                 FY 2006                 Increase                Percent
      Estimate               Justifcation            (Decrease)               Change

     $1,690,000              $1,527,000              ($163,000)                 -10%

Due to the timing of scheduled events, the Training division will conduct only one
community leadership institute (CLI) during FY 2006 (normally there are two CLIs per
fiscal year), therefore, the cost of meetings, including room rental and group meals is
expected to decrease by $163,000.


      FY 2005                 FY 2006                 Increase                Percent
      Estimate              Justification            (Decrease)               Change

     $3,400,000              $3,500,000               $100,000                   3%

This expense category includes payments for office leases and utilities. The FY 2006
increase will cover escalation clauses and tenant share of premises’ operating costs as
stated in executed lease agreements.

Other Operating Costs:

      FY 2005                 FY 2006                 Increase                Percent
      Estimate              Justification            (Decrease)               Change

     $6,027,000              $5,910,000              ($117,000)                 -2%

Other operating costs include telephones, postage, printing, office supplies, equipment
rental, and other general operating costs. Despite rising costs, a reduction of 2 percent is
expected in this category due to office re-location costs for Boston and Ithaca (such as
office furniture and moving costs) in FY 2005 that will not recur in FY 2006.

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Capacity Building Grants:

      FY 2005                 FY 2006               Increase               Percent
      Estimate              Justification          (Decrease)              Change

    $18,541,000              $19,765,000           $1,244,000                7%

This expense category provides grants to cover expendable costs to support existing
NeighborWorks® organizations in such activities as financial management, resource
development, staff recruitment and retention, board development, and the expansion into
new programmatic and geographic service areas. Capacity building grants are projected
to increase by $1,224,000 (7 percent), in response to growing demand from the
NeighborWorks® network.

Equity Capital Grants:

      FY 2005                 FY 2006               Increase               Percent
      Estimate              Justification          (Decrease)              Change

    $43,200,000              $43,200,000               $0                    0%

Equity capital grants enable NeighborWorks® organizations to rehabilitate existing
structures and to construct new housing. No change is projected in this grant category in
FY 2006.

Training and Informing:

      FY 2005                 FY 2006               Increase               Percent
      Estimate              Justification          (Decrease)              Change

     $2,580,000              $2,580,000                $0                    0%

This expense line provides expendable grants to cover travel and lodging expenses for
NeighborWorks® participants attending training events sponsored by Neighborhood
Reinvestment. No change is expected in this grant category.

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FY 2006 Budget Justification
Secondary Market Activities:

      FY 2005                 FY 2006               Increase               Percent
      Estimate              Justification          (Decrease)              Change

     $8,084,000              $8,250,000             $166,000                  2%

These grants cover the costs of servicing the existing secondary-market portfolio,
purchasing loans and developing additional social investments. In FY 2006, it is
expected that secondary market grants will increase by 2 percent to facilitate enhanced
capacity to service borrowers bypassed by the conventional market.

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