In its 20-year history, Mississippi Valley Neighborhood Housing Service stayed focused on a single east-Davenport neighborhood. When it was awarded Community Development Financial Institution status by the U.S. Treasury in August, its mission and target area grew to seven counties, extending north to Clinton and south to Keokuk and reaching across the river to Rock Island County.
"We saw that the need was greater than just one neighborhood," said Bob Zelsdorf, executive director of the not-for-profit Neighborhood Housing Service (NHS).
The need might be greater than just one Community Development Financial Institution (CDFI) can handle. On February 11, the for-profit Covenant Financial Services was also given CDFI status by the federal government, and it plans to offer services starting in April. "There's enough need for a dozen" CDFIs in the Quad Cities, said John Wahl, a board member for Covenant. (Wahl and Kate Ridge, both of John Lewis Coffee Shop, have been instrumental in getting Covenant off the ground, although the financial-services company is not part of the social-service organization.) "Look at the number of properties rented by people who'd rather own them," Wahl said.
Both NHS and Covenant are focusing on increasing home ownership, especially among low- and moderate-income people who have difficulty accessing financing at or near market rates. Low- and moderate-income families might finally have an alternative to "subprime" lenders that have often been accused of gouging customers with unjustified interest rates and fees. (See sidebar on predatory-lending legislation.) In its east-Davenport neighborhood, NHS was the fourth largest lender, and two of the institutions ahead of it were predatory lenders, Zelsdorf said.
Both NHS and Covenant will also offer services that should reduce the need for high-cost services such as check-cashing and payday loans.
Because it got its CDFI status last year, NHS is farther along in its plans.
Everything about the organization has gotten bigger in the past few months. In late December, NHS left its office in a house at LeClaire and Locust streets and took over the 53,000-square-foot Mercantile Bank building at 3rd and Main streets. The group has increased its net assets from $1.7 million two years ago to $6.2 million today, and it hopes to have a $10-million revolving loan fund eventually. NHS's staff has ballooned from two people a few years ago to 14 now.
Zelsdorf describes NHS's mission as providing "a menu of products for neighborhood redevelopment and affordable housing." The organization frequently offers nearly 100 percent of financing (meaning a small or no down payment), local underwriting (so that decisions are made locally and take into account extenuating circumstances), and interest below market rates. It also doesn't require private mortgage insurance, an added cost to borrowers who don't have a large down payment.
NHS also wants to provide financing for improvement projects in historic homes and neighborhoods, regardless of the owners' income.
It's less clear what lies ahead for Covenant Financial Services. In the short term, Wahl said, the company will focus on an area from the "crest of the hill and down to the river" in west and central Davenport, but eventually he envisions a much larger service area. The size of the company's revolving loan fund is "not determined at this time," Wahl said, and will depend on the success of Covenant's initial public offering, among other factors.
The big difference between NHS and Covenant is how they get their money. Because of its for-profit status, Covenant will probably draw more private investment, while NHS will be eligible for more grant funding.
CDFI status certainly makes NHS more attractive to banks. By investing money in a CDFI, banks can fulfill federal Community Reinvestment Act requirements as well as qualify for cash rebates of up to 15 percent. In addition, a federal program known as EQ2 allows those contributions to be counted as investments rather than donations, meaning they don't negatively affect the bank's bottom line.
And those investments pay dividends for NHS because the organization is eligible for matching funds from the federal government. Beyond that, the low-interest investments from banks could help NHS become self-sufficient.
For example, Firstar invested $250,000 last month, with a 2.5 annual percent rate interest on the 10-year loan. NHS can lend that money at a higher rate - but still at or below market rate - and use the proceeds to pay staff salaries.
It hopes to rent the spare space in its new digs - and there's a lot of that - to generate money to pay the building's overhead costs; NHS thinks that it can generate $170,000 a year in rent. "We're hoping by summer we'll have it [the office space] committed," Zelsdorf said.
Some office space is being given to various community organizations, especially those with aims similar to NHS. Sacred Heart Food Pantry and Quad City Interfaith have already opened offices in the building, and several other organizations, including Ecumenical Housing, are preparing to do the same. Zelsdorf reasoned that the organizations can save money by sharing spaces such as the board room and classroom.
One potential renter is the federal government. The Social Security Administration and Senator Charles Grassley are looking for new offices, and if the NHS building is selected, that would account for approximately 8,600 square feet.
Covenant is less restricted in its sources of income, but its CDFI status also opens opportunities. People and companies can get tax credits for certain types of investments in Covenant, and those "enable them to invest in areas that are currently economically infeasible," Wahl said.
But if their funding sources are different, NHS and Covenant will be serving the same types of people and offering similar services. Zelsdorf doesn't think that's a problem. He noted that a countywide housing-needs assessment found that approximately 40 percent of homes surveyed needed some type of rehabilitation or repair. "The need far exceeds the capacity," he said.
The need also extends to everyday financial services, and to people with poor credit.
Within a month, NHS plans to sell money orders at cost, and it also wants to offer check-cashing services in the coming months - "not to compete with banks, but to compete with the payday lenders," Zelsdorf said.
This group of basic financial services is pretty far from home financing, but it's still important. Check-cashing and payday-loan businesses serve a market that traditional financial institutions ignore, but they charge hefty fees and interest. And in that way, Zelsdorf said, providing competing services builds neighborhoods. "Payday-loan places are robbing our neighborhoods," he said.
Covenant is also targeting payday-loan businesses, but in a different way. In addition to financial-literacy classes currently contracted with John Lewis Coffee Shop, Covenant plans to offer short-term loans and other consumer services. "We anticipate some of our services will reduce the need for payday loans," Wahl said.
In the long run, Zelsdorf said, NHS can help people with poor credit, but "it's not going to be a quick fix." NHS won't finance mortgages for people with risky credit histories immediately, but it will provide education and services to help them become credit-worthy. NHS will be a place to "transition people from not bankable to bankable."
Zelsdorf doesn't claim that adding services and increasing the area it covers will be easy for NHS. "This is kind of a dream," he said. "We crawl, we walk, we run. We're exploring a lot of things, but we're in the crawl stage.
"Some people say, 'You're the best-kept secret,'" he added. "We only worked in one area before."
NHS can be reached at 324-1556. For more information about Covenant Financial Services, call John Wahl at 322-3751.
"We saw that the need was greater than just one neighborhood," said Bob Zelsdorf, executive director of the not-for-profit Neighborhood Housing Service (NHS).
The need might be greater than just one Community Development Financial Institution (CDFI) can handle. On February 11, the for-profit Covenant Financial Services was also given CDFI status by the federal government, and it plans to offer services starting in April. "There's enough need for a dozen" CDFIs in the Quad Cities, said John Wahl, a board member for Covenant. (Wahl and Kate Ridge, both of John Lewis Coffee Shop, have been instrumental in getting Covenant off the ground, although the financial-services company is not part of the social-service organization.) "Look at the number of properties rented by people who'd rather own them," Wahl said.
Both NHS and Covenant are focusing on increasing home ownership, especially among low- and moderate-income people who have difficulty accessing financing at or near market rates. Low- and moderate-income families might finally have an alternative to "subprime" lenders that have often been accused of gouging customers with unjustified interest rates and fees. (See sidebar on predatory-lending legislation.) In its east-Davenport neighborhood, NHS was the fourth largest lender, and two of the institutions ahead of it were predatory lenders, Zelsdorf said.
Both NHS and Covenant will also offer services that should reduce the need for high-cost services such as check-cashing and payday loans.
Because it got its CDFI status last year, NHS is farther along in its plans.
Everything about the organization has gotten bigger in the past few months. In late December, NHS left its office in a house at LeClaire and Locust streets and took over the 53,000-square-foot Mercantile Bank building at 3rd and Main streets. The group has increased its net assets from $1.7 million two years ago to $6.2 million today, and it hopes to have a $10-million revolving loan fund eventually. NHS's staff has ballooned from two people a few years ago to 14 now.
Zelsdorf describes NHS's mission as providing "a menu of products for neighborhood redevelopment and affordable housing." The organization frequently offers nearly 100 percent of financing (meaning a small or no down payment), local underwriting (so that decisions are made locally and take into account extenuating circumstances), and interest below market rates. It also doesn't require private mortgage insurance, an added cost to borrowers who don't have a large down payment.
NHS also wants to provide financing for improvement projects in historic homes and neighborhoods, regardless of the owners' income.
It's less clear what lies ahead for Covenant Financial Services. In the short term, Wahl said, the company will focus on an area from the "crest of the hill and down to the river" in west and central Davenport, but eventually he envisions a much larger service area. The size of the company's revolving loan fund is "not determined at this time," Wahl said, and will depend on the success of Covenant's initial public offering, among other factors.
The big difference between NHS and Covenant is how they get their money. Because of its for-profit status, Covenant will probably draw more private investment, while NHS will be eligible for more grant funding.
CDFI status certainly makes NHS more attractive to banks. By investing money in a CDFI, banks can fulfill federal Community Reinvestment Act requirements as well as qualify for cash rebates of up to 15 percent. In addition, a federal program known as EQ2 allows those contributions to be counted as investments rather than donations, meaning they don't negatively affect the bank's bottom line.
And those investments pay dividends for NHS because the organization is eligible for matching funds from the federal government. Beyond that, the low-interest investments from banks could help NHS become self-sufficient.
For example, Firstar invested $250,000 last month, with a 2.5 annual percent rate interest on the 10-year loan. NHS can lend that money at a higher rate - but still at or below market rate - and use the proceeds to pay staff salaries.
It hopes to rent the spare space in its new digs - and there's a lot of that - to generate money to pay the building's overhead costs; NHS thinks that it can generate $170,000 a year in rent. "We're hoping by summer we'll have it [the office space] committed," Zelsdorf said.
Some office space is being given to various community organizations, especially those with aims similar to NHS. Sacred Heart Food Pantry and Quad City Interfaith have already opened offices in the building, and several other organizations, including Ecumenical Housing, are preparing to do the same. Zelsdorf reasoned that the organizations can save money by sharing spaces such as the board room and classroom.
One potential renter is the federal government. The Social Security Administration and Senator Charles Grassley are looking for new offices, and if the NHS building is selected, that would account for approximately 8,600 square feet.
Covenant is less restricted in its sources of income, but its CDFI status also opens opportunities. People and companies can get tax credits for certain types of investments in Covenant, and those "enable them to invest in areas that are currently economically infeasible," Wahl said.
But if their funding sources are different, NHS and Covenant will be serving the same types of people and offering similar services. Zelsdorf doesn't think that's a problem. He noted that a countywide housing-needs assessment found that approximately 40 percent of homes surveyed needed some type of rehabilitation or repair. "The need far exceeds the capacity," he said.
The need also extends to everyday financial services, and to people with poor credit.
Within a month, NHS plans to sell money orders at cost, and it also wants to offer check-cashing services in the coming months - "not to compete with banks, but to compete with the payday lenders," Zelsdorf said.
This group of basic financial services is pretty far from home financing, but it's still important. Check-cashing and payday-loan businesses serve a market that traditional financial institutions ignore, but they charge hefty fees and interest. And in that way, Zelsdorf said, providing competing services builds neighborhoods. "Payday-loan places are robbing our neighborhoods," he said.
Covenant is also targeting payday-loan businesses, but in a different way. In addition to financial-literacy classes currently contracted with John Lewis Coffee Shop, Covenant plans to offer short-term loans and other consumer services. "We anticipate some of our services will reduce the need for payday loans," Wahl said.
In the long run, Zelsdorf said, NHS can help people with poor credit, but "it's not going to be a quick fix." NHS won't finance mortgages for people with risky credit histories immediately, but it will provide education and services to help them become credit-worthy. NHS will be a place to "transition people from not bankable to bankable."
Zelsdorf doesn't claim that adding services and increasing the area it covers will be easy for NHS. "This is kind of a dream," he said. "We crawl, we walk, we run. We're exploring a lot of things, but we're in the crawl stage.
"Some people say, 'You're the best-kept secret,'" he added. "We only worked in one area before."
NHS can be reached at 324-1556. For more information about Covenant Financial Services, call John Wahl at 322-3751.
