The Anchorage Neighborhood Housing Services (ANHS) Home Affordability Program (HAP) is an example of an innovative partnership between a NeighborWorks organization and a State Housing Finance Agency. In this case, the Alaska Housing Finance Corporation (AHFC) provided a $5 million line of credit to ANHS to create a comprehensive home-ownership program.

In the late 1980s, the Anchorage housing market fell into a downward spiral. Property values plunged 40 percent to 60 percent, accompanied by an increased foreclosure rate. Home ownership declined from 59 percent to 51 percent. The city’s older neighborhoods were hit hardest. With properties were available at lower prices, ANHS and AHFC saw an opportunity to increase home ownership among modest-income families.
 
AHFC had a surplus of funds and was able to issue mortgage-revenue bonds that produced a first-mortgage product with an interest rate of 5 percent. This product generated $70 million in first mortgages in Anchorage alone, boosting the home-ownership rate to 52 percent.
 
ANHS, given these opportunities in the market, moved more directly into home ownership and the development of a Full-Cycle Lending approach. In a little more than a year, ANHS closed 75 loans. ANHS also began looking at ways to work more directly with AHFC.
 
Given Anchorage housing-market conditions, ANHS developed an approach that tried to achieve three important policy objectives:

• To provide a first-mortgage financing source for low-income families earning 80 percent or less of median income;
   
• To increase home ownership in certain distressed neighborhoods by encouraging home purchase for buyers of varied income levels, as part of a mixed-income strategy;
   
• To offer home-ownership opportunities to individuals with special needs, such as people with disabilities, mental illness or AIDS.

AHFC completed a $400-million refunding of tax-exempt bonds that had been issued at higher interest rates. In so doing, AHFC was able to arbitrage funds, earning a point spread on the outstanding obligation. With this arbitrage, the Agency could provide a new source of affordable housing funds.
 
ANHS applied to AHFC through its Loans to Sponsors Program, asking for $5 million to create the HAP. These funds would be available as a line of credit over five years and could be renewed subject to performance.

The HAP had three basic loan products that reflect policy objectives outlined above.
 
1. Citywide mortgage loans, to bridge the affordability gap, to individuals earning low and moderate incomes, below 80 percent of median.
 
Applicants would have access to a variety of first-mortgage products from local lenders as well as the FNMA, FHLMC and NHSA products of the NeighborWorks Campaign for Home Ownership. In addition, second mortgages would be available through HAP with a fixed rate of 3 percent. Payment of principal would be deferred for the first five years, with monthly payments of principal and interest amortizing over a 20-year period. The maximum loan amount for the second mortgage was $30,000.
 
These second mortgages were designed to help potential buyers bridge the affordability gap. Because of high rents in Anchorage, modest-income families generally pay almost half their income for housing, leaving little to none to save for a down payment. This component of HAP was developed to supplement a modest down payment and to increase borrowing power.
 
2. Loans for acquisition of one- to four-unit properties by individuals and families with incomes of up to 140 percent of the area median, in five targeted neighborhoods with low rates of home ownership.
 
This was also a second-mortgage product designed to be used with a variety of first-mortgage products available through ANHS. It was structured in the same way as the citywide component. It could be used for purchase-rehabilitation; in this case, the upper limit of the second mortgage would be $50,000.
 
ANHS concentrated on neighborhoods with declining home-ownership rates, to provide an incentive for home purchase By raising income eligibility to 140 percent of median income, ANHS provided for an income mix in these distressed neighborhoods, contributing to long-term stability.
 
3. First-mortgage loans for acquisition of single family homes by eligible special needs applicants with incomes up to 100 percent of area median income.
 
In this component, ANHS is partnering with Anchorage Housing Initiatives Inc., a consortium of local housing and social service providers to a population of individuals developmentally disabled, mentally ill, or suffering from AIDS. For those individuals deemed ready to assume the responsibilities of home ownership, ANHS would provide mortgage financing for purchase and for rehabilitation.

1.  Extended Negotiations
Despite the availability of funds and an existing program framework, the Loans to Sponsors Program, the negotiations to implement HAP took a full year. Working out details of the program necessitated a good deal of back-and-forth communication. The lesson here for NeighborWorks organizations interested in developing a similar approach is to be persistent and tenacious.

2.  Using Available Resources
A second lesson is to get good advice. ANHS used the services of a public finance attorney to understand the arbitrage features of AHFC's bond refunding. ANHS also used a consultant recommended by NeighborWorks America for development of the loan products.

3.  Fannie Mae Input
In much the same way, NHS of Anchorage solicited Fannie Mae’s advice in setting up the transaction. NHS asked for Fannie Mae’s input on documents for the first- and second-mortgages, so that the first mortgages generated under the program would be saleable. In addition, Fannie Mae agreed to purchase loans made to borrowers with up to 140 percent of area median income, if borrowers purchased homes in neighborhoods that the local municipality declared blighted. Fannie Mae renewed the Municipal Assembly’s language for appropriateness.

4.  Political Support
Organizing political support for the application was important. The Anchorage Municipal Assembly passed a resolution approving the five target neighborhoods as specific target areas and, in so doing, raised the application’s political profile. ANHS also submitted letters of support from both community organizations and from agencies that were part of Anchorage Housing Initiatives.
 
Agency interview with: Martin Wood