Mortgage Leveraging for Maine Habitat Maine September 29, 2012

“If I were donating money to a non profit and saw them piling up assets, I’d be wondering why they weren’t using those assets to serve the poor” -Frank Kurre, Habitat International. $$$$$$$$$$$

Concept Mortgages portfolios are Habitat affiliates’ largest and most important asset. With 0% interest, Habitat mortgage portfolios lose money over time. Habitat mortgages are attractive to today’s investors and can be sold or borrowed against to raise cash. Cash raised through leveraging mortgages can be used to support affiliate growth and help more families.

Have similar programs been run elsewhere? Yes, I have been in touch with Habitat in: South Dakota Minnesota Colorado Iowa

Loan Pool Characteristics This is a revenue bond opportunity $760,000 - $1,400,000 in loan balances is currently available from six Maine Habitat affiliates Only the future payment stream is available, loan servicing will remain at community banks Average remaining life of loans: 18 years Only current and performing loans will be sold A second round of mortgage loans expected to be available in 2014 -15

Affiliate Benefits A mortgage purchase or loan program can help affiliates grow in several ways: Buy land Build or rehabilitate homes Build or improve a ReStore Support development staff who can raise additional funds The bottom line: Funds from the sale of mortgage assets can be invested in assets with a higher ROI.

How does this affect Habitat families? Homeowners will see no difference in their payments or in their relationship with their affiliate. A cash reserve funded from mortgage sales can be used to cover any late payments. The relationship with Habitat and their homeowners is and will remain the highest priority.

Investor Benefits Habitat mortgages can: Be a low risk investment Have a steady rate of return Be a way to provide support to the community and help Habitat build affordable, decent and energy efficient homes. Qualify for Community Reinvestment Act credit

Guarantees Cash Reserves Mortgage inventory and “silent second” position as collateral Habitat International “guarantee” of affiliates and SSO

Investor Requirements A Single point of contact for program. Habitat affiliates must provide cash reserves and cover any delinquencies. Loan servicing would not be included. Investor financial terms and conditions must be met.

Key Considerations for Affiliates Don’t replace traditional fundraising with mortgage leveraging. Do use mortgage leveraging to finance new assets. Do continue your relationships with homeowners.

How does it work? Definition: The life of mortgages will be monetized in one lump sum transaction. Mortgages are discounted, based on the net present value of the payment stream. Affiliate monthly payments and reports go to SSO. SSO makes a monthly payment from participating affiliates to investor(s).

Role of the SSO* Maintain investor relationships, find new investors Be the single point of contact for investors. Set up program guidelines. Administer program by packaging loans for investors. Collect payment from affiliates (automated) and submit to investors. Monitor monthly reports and delinquencies. Arrange for recourse, if needed Work with affiliates and investors to package new mortgages. *SSO= Habitat’s Statewide Support Organization

Proposed Affiliate Guidelines: Affiliate has a board approved Plan for Growth: a strategic plan, a business plan or a fund development plan. Affiliate must verify Good Standing with HFHI A current 990 Form has been filed with the IRS Affiliate has a healthy balance sheet, with at least 50% of mortgages current An affiliate has sufficient mortgage reserves to participate Affiliate agrees to keep a cash reserve to cover payments if homeowners are late. Affiliate must have a reliable book keeping system and a commit to tracking funds on a monthly basis.

Proposed Affiliate Guidelines Affiliates have loans that meet the criteria for sale Affiliate has a Board Resolution to participate in the program Affiliate agrees to submit monthly payments and monthly reports to the SSO, who will forward payments monthly to investors (No more than 60% of an affiliate’s mortgage portfolio can be leveraged.) (No more than 25% of an affiliate’s mortgage portfolio can be used to pay for affiliate capital improvements, start up costs for ReStores or fundraising staff.)

Qualifying Mortgages* Must be a first position mortgage for property in Maine. Must be at least six months old. Must meet be current (no more than two 3-day past due payments over the past 12 months). Taxes and insurance must be current. Title is clear. Loan is at zero percent interest with term of no more than 40 years. *Qualifying Mortgages subject to investor approval.

Net Present Value Example 1 Remaining Balance: $49,828.92 Remaining Term: 12 years Monthly payment: $363.09 1% = $49,039.27 (99% of face value) 2% = $46,077.61 (92%) 3% = 43,370.39 (88%) 4% = 40,891.52 (82%) 5% = $38,618 (77%)

NPV Example 2 Remaining Balance $138,021.39 Remaining Term: 39 years Monthly payment: $293.75 1% =113,375 (82%) 2%= 94,832 (68%) 3% = $80,398 (58%) 4% = $69,035 (50%) 5% = 59,986 (43.4%)

Example: Midcoast Habitat Mortgages Location Remaining Principal Remaining Term (Months) Monthly Principal 137 Booker St 75,087 258 291.04 139 Booker St 77,235 270 285 10 Clark St 65,190 246 265 63,710 234 272.33 $ 281,222.00 1113.37

Benefits Drawbacks Large upfront cash opportunity for affiliates On going growth for affiliates Relationships with investors can lead to other opportun- ities Reduces monthly income. Labor intensive to set up program (similar to fundraising). On-going reporting and monitoring required.

Potential Investors Maine Housing Coastal Enterprises Genesis Fund Foundation Endowment Investment Private Investors

Proposed Timeline November-December: Meetings with investors Firm up mortgage numbers with affiliates Firm up plans for growth with affiliates January: Firm up documentation, legal work Negotiate specific terms with investors February: Close deal, deposit funds with affiliates

Sue Inches HabitatMaine@gmail.com 415-5891 Questions? Sue Inches HabitatMaine@gmail.com 415-5891