When Tammi Phillips
and her 11-year-old son Sean moved into their new house this fall, Sean
got the room he wanted—the one with a phone jack, which enabled him
to connect a computer to the Internet. That wasn't really an option in
the house they'd been renting. But more importantly, Sean got a well-built,
well-heated home. And his mother got an affordable mortgage.
The house into which
Sean and his mother moved is one of 30 new homes built this year by Frontier
Housing, a nonprofit agency based in Morehead (Rowan County), Kentucky.
Tammi Phillips had applied to Frontier for help in becoming a homeowner
even before their old, seriously dilapidated house was damaged by a chimney
fire.
"I couldn't
have provided Sean the home he deserved [without Frontier]," Phillips
says. "If you're home cold, you can't concentrate on school. Kids
will accomplish more and have a better attitude if they're in a decent
home."
That's one expression
of an idea that permeates every level of Kentucky's extensive program
to help low-income and moderate-income families buy their own homes. Decent,
affordable shelter is important in its own right, of course, but the Kentucky
program stresses home ownership as a positive contribution to families
and communities.
Understanding the Kentucky effort requires a look at three kinds of organizations:
first, local organizations like Frontier; next, the Kentucky Housing Corporation,
a state-level public corporation with almost three decades of experience
in innovative housing finance; and, finally, the Federation of Appalachian
Housing Enterprises, a coalition of these and other organizations whose
special focus is advocacy for rural housing. All of these organizations
have often been partners with the Appalachian Regional Commission (ARC).
The Local Connection
Local agencies like Frontier Housing work where the hammer hits the nail. That
is, they arrange credit (and provide other services) for low-income families,
and they hire crews that actually build houses. Frontier, founded in 1974, is
one of the oldest of these local nonprofits. It serves seven Appalachian counties—Bath,
Carter, Elliott, Fleming, Menifee, Morgan, and Rowan (all but Fleming are designated
by ARC as economically distressed).
At least 10 percent of the houses in this service area were deemed substandard
at the time of the last Census. The average per capita income in the area was
projected at just under $12,600 in 1996, half the national average and less
than two-thirds of the state average. As a result, 14 percent of homeowners
and 36 percent of renters were classified as "cost-burdened," meaning
that they paid more than 30 percent of their monthly income for housing.
Most of Frontier's clients come from hard-working but cost-burdened households, says Stacey Epperson, Frontier's executive director.
"We see a lot of women," Epperson says, "who work in nursing
homes, day care, or fast-food service jobs. But we also get a lot of young couples
who just need a break. The husband and wife are both employed, putting their
kids through school."
For potential clients, the initial step is a "pre-application," followed
by classes on home finance and rules governing state and federal housing programs,
and guidance on home ownership issues (for example, taxes, insurance, and maintenance).
This help is important, Epperson says.
"Half of our families make their mortgage payments in cash," she
says. "Some don't have bank accounts. Just the job of servicing these loans
for 30 years is a lot of work."
For applicants who stay the course and who appear to be qualified for financing,
the Frontier staff help with everything from finding a suitable home location
to putting together a financing package whose repayment schedule will fall between
20 and 29 percent of household income.
"Land is hard to come by in the price range we need," Epperson says.
"We're always looking. If we see a 'For sale' sign, we jot the number down
and call."
Frontier now receives roughly 500 pre-applications per year, and this year
completed 30 new homes for families whose annual household incomes average only
a bit above $12,000. The financing packages are highly creative, often involving
two or more low-interest loans paid off at different schedules designed to keep
initial payments as low as possible.
Throughout its 26-year history, Frontier has produced 400 homes. A drive on
back roads with Epperson and Tom Carew, Frontier's former executive director,
is punctuated regularly with Carew's comment, "There's a Frontier house!"
Frontier houses are designed to be competitive from a total cost perspective
with mobile homes, which are low-income rural families' only other realistic
option for home ownership. The average contract cost of a Frontier house built
this year is $59,500. That's higher than the sticker price of many mobile homes,
but it includes the cost of land, water and sewer service, and, of course, far
more favorable financing than any commercial lenders can provide. Flexible mortgage
terms keep payments under 30 percent of household income, and using heat pumps
for heating and cooling in the snug, well-insulated homes helps keep occupancy
costs down. Most importantly, Frontier houses will appreciate in value.
Frontier's loan qualification procedures encourage sound, long-term values
by emphasizing the responsibilities of home ownership as well as its privileges.
Applicants can choose between several basic floor plans, wall colors, and other
features. But all buyers must contribute 200 hours of "sweat equity,"
either from themselves or from friends and family members.
Most new owners meet this requirement by installing trim, painting, or undertaking
other projects that make their new homes more attractive. For example, new home
owner Georgia Parish is painting and making curtains, and next year plans to
have a garden at her Frontier house. She's paying $171 per month for a house
located five miles away from where her parents grew up. She was paying $275
per month for a dusty, noisy apartment. But she emphasizes that, money aside,
the new home is a source of pride. "Where I lived before," she says,
"I didn't do much of anything but climb the walls. I'm going to wallpaper
when I can find what I want. I'm picky now that I own it."
Frontier has a network of partners who help make the program work. For example,
Proctor Caudill, a local banker, has joined with Frontier in many loans. He
says that loans made in partnership with Frontier aren't intended to be serious
money-makers for his bank, but they're never money-losers. How many borrowers
default? "I couldn't give you a figure," Caudill says. "I don't
think we've repossessed a house in the last five years. Maybe ten."
Building Wealth and Stability
The work of local-level groups like Frontier is in large part made possible
by a state-level organization, the Kentucky Housing Corporation (KHC). The KHC
is administratively part of state government but financially self-supporting.
Since its creation in 1972, the KHC has helped finance home purchases for more
than 50,000 low-income and moderate-income Kentucky families.
"I want everybody to have a mortgage at least once," says F. Lynn
Luallen, the KHC's CEO, describing the goals of the state program. "This
is usually a family's first shot at building any kind of wealth. Home ownership
adds not only to the stability of the family itself, but [also to] the stability
of the community. For example, families can use that wealth to borrow against
for education at the post-secondary level and beyond. [By investing in housing]
you are really adding to the economic base of the whole county and state."
The KHC began to take its present form almost three decades ago, based on a
concept that then had been tried by only a few states. When the Kentucky General
Assembly created the KHC, it authorized the corporation to sell tax-exempt mortgage
revenue bonds in order to create a pool of money to be used for financing low-income
and moderate-income housing. Its initial bond issue brought in $51.2 million,
the re-investment earnings of which enabled the state to launch its Construction
Loan Fund, then about $3 million.
Within five years, the KHC became self-supporting and repaid the state's initial
appropriation to cover start-up costs. Today its home ownership lending pool
exceeds $190 million annually.
Although its bond program remains by far the KHC's largest source of revenue,
the organization also earns fees for administering federal low-income housing
programs, including rental assistance, which annually helps more than 15,000
families find decent, affordable housing. Since 1998 the legislature has authorized
state revenues from a portion of unclaimed state lottery tickets to flow into
the KHC's Affordable Housing Trust Fund.
Luallen notes that ARC has been a long-time supporter of the KHC, primarily
through funds for infrastructure, a critical element in developing new areas
for both single-family and multi-family housing. Water and sewer lines, roads,
and education programs make home ownership possible, he says, just as home ownership
increases a family's stake in its community.
In January 2000, Carew, Frontier's then–executive director, became director
of the KHC's Kentucky Appalachian Housing Program, responsible for helping the
KHC allocate more resources in Kentucky's 49 Appalachian counties. Statewide,
the KHC works with approximately 125 local agencies.
"We rely a lot on the local nonprofits to do their homework and tell us
what the demand is," Luallen says. "They know their communities. They
know their people. We trust their judgment, and we allocate our resources by
a process of cross-fertilization between statistical research and what they
tell us."
Advocacy for Rural Housing
Another important participant in the Kentucky housing effort is the Federation
of Appalachian Housing Enterprises (FAHE). FAHE is headquartered in Berea, but
it operates both within and beyond the borders of the Commonwealth. It's a coalition
of about 30 community-based nonprofit housing organizations in the Appalachian
counties of Kentucky, Tennessee, Virginia, and West Virginia.
FAHE manages a Home Loan Fund that makes loans to very-low-income applicants
at rates as low as1 to 3 percent, and a Construction Loan Fund that makes short-term,
low-interest loans to member groups. Over the past two decades, FAHE's pool
of lending capital has grown from $30,000 to approximately $22 million. FAHE
also provides a wide range of technical assistance services.
In addition to mortgage lending and counseling, FAHE has partnered with the
Central Appalachian Peoples Federal Credit Union (CAPFCU), which has recently
become a member of the Federal Home Loan Bank System and a U.S. Department of
Housing and Urban Development-certified lender. This enables CAPFCU to package
loans for KHC. FAHE, CAPFCU, and the Human/Economic Appalachian Development
Corporation recently created Appalbanc, a community development financial institution.
FAHE also plays a strong advocacy role that includes bringing to the attention
of state and federal housing program administrators the special needs and problems
of working in rural areas.
"I think," says Jim King, FAHE's chief operations officer, "that
ARC is the only agency that really recognizes the importance of targeting loans
to low-income rural areas."
Some programs, King says, determine low-interest loan eligibility by household
income, typically 80 percent of median income for the county of residence. When
an entire county is distressed, this means that a household's income has to
be less than 80 percent of an already low figure.
Carew agrees, mentioning two adjacent Kentucky counties—one where median
income is about $28,000, the other (thanks to one small city) where the same
number is about $52,000. The result is actually an inverse relationship between
need and eligibility. "If a family [with income of, say, $35,000] lives
in the more affluent county," Carew says, "they can qualify for all
kinds of assistance. If they live in a distressed county, we can't help them."
As another example, King notes that some U.S. Department of Housing and Urban
Development loan programs require special permissions for financing houses within
3,000 feet of a railroad line. That makes sense in urban areas, where rail lines
rarely run through areas desirable for residential development, but it's a major
problem for small towns in Appalachia.
"Anybody who's ever been through Appalachia," Carew says, "knows
that a railroad runs through every town with houses along the hillsides. That
rule eliminates the whole town. All we're trying to do is help low-income people
live where everyone else lives."
King adds that other programs, based on a well-intentioned goal of making financing
easier for low-income families, may not demand enough of recipients, offering
grants instead of loans. He applauds the work of groups like Frontier that demand
sweat equity and require applicants to attend classes.
"It can sometimes be more difficult to use federal funds because we ask
something in return," King says. "Federal programs that impose 'giftedness'
rules rob families of self-esteem. We're trying to create an underlying ethic
of responsibility."
"Once [money is] given away, it's gone," adds David Lollis, FAHE's
executive director. "Appalbanc and FAHE have committed that we'll try to
use that money over and over. It's a lot more labor-intensive, but I think it's
much better public policy."
That's a message that resonates through every level of the Kentucky housing
program.
Caudill, the banker who often partners with Frontier Housing, makes much the
same point as King. "The thing that stands out in my mind," he says,
"is the true, honest concern for people this organization has had and what
it's done for our culture. It's good people helping good people."
"Almost three-quarters of the households in the Commonwealth hold title
to their homes," says Jerry D. Johnson, special assistant to Governor Paul
E. Patton and director of the governor's Office of New Appalachian Development,
"but Governor Patton knows how hard it is for families in rural Appalachia
to buy into this particular piece of the American dream. The Kentucky Housing
Corporation and its many local partners are doing a wonderful job in helping
low-income families—good, hard-working people—become homeowners. When
they do that, they're building more than houses; they're building a solid foundation
for these families' futures."
Tammi Phillips is proof of that. Mostly she emphasizes what a safe, warm home
will mean for her son's future. But her own pride of home ownership is obvious.
Her new house is in a hollow closely flanked by tree-covered hillsides. Phillips
mentions that her new lot covers three acres. When a visitor remarks that it
doesn't look quite that large, she laughs and points to one of the hillsides.
"Three acres!" she repeats. "It's all hill. But it's my hill."
Fred D. Baldwin is a freelance
writer based in Carlisle, Pennsylvania.
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