The Mercy Loan Fund: Bridging the Gap to Affordable Housing

Twenty-one years ago, the Sisters of Mercy of Omaha, Nebraska noticed that many members of their community were having problems with their landlords, were living in deteriorated housing, and were being consistently denied loans from banks to purchase a home. Inspired by the idea that they themselves could be better landlords, the Sisters of Mercy of Omaha started Mercy Housing, Inc., a nonprofit organization that develops, operates, and finances quality, affordable, service-enriched housing.

Within a few years, Mercy Housing realized the need for a source of loan capital dedicated to its affordable housing mission. This led the Redemptionist Fathers Province of St. Louis and the Sisters of Mercy of Omaha to invest a total of $200,000 and launch the Mercy Loan Fund. Mercy Loan Fund now represents a sizeable source of financing for the development of affordable housing throughout the U.S. and closes the gap between the needs of affordable housing developers and available conventional financing.

Since its inception, Mercy Loan Fund (MLF) has provided more than $54 million in 296 loans to nonprofit organizations and has acted as an intermediary for an additional $41 million in 20 loans. MLF has leveraged over $811 million in total development funding - an average of $8.45 per dollar loaned - to support the development of over10,400 units that 31,000 residents now call home. Although traditional financial institutions passed over many of MLF's loan applicants, only $166,257 of the $95 million lent has resulted in default.
While MLF began as a source of loan capital for Mercy Housing, 70 percent of its resources are now dedicated to nonprofit housing developers not affiliated with Mercy Housing, Inc. MLF generally provides financing to cover the gap between loan funds available through conventional sources and the equity financing usually provided by a state or local government. In almost every case, MLF funding is the critical component of financing that can make or break the development of affordable housing - even when their funding contributes only a small percentage of the total money invested.

Who the Loans Serve

MLF's loans ultimately serve individuals and families with incomes less than 80 percent - and often less than 50 percent - of the area median income. These households include the working poor, senior citizens, farm workers, formerly homeless individuals, and people with special needs, including the chronically mentally ill and people living with HIV. Most of the developers working with MLF provide supportive services tailored to the residents of each housing development.

For example, not too long ago, MLF made a loan to Providence Network to acquire an apartment building in downtown Denver, Colorado. Known locally as Joy House, the building is home to a program dedicated to providing long-term transitional housing for victims of domestic violence. Recognizing that victims of domestic violence often lack the financial resources or do not have viable long-term housing options available to them after the 30-45 days of protection that most shelters offer, Providence Network contacted MLF in search of funding to provide transitional housing dedicated to domestic abuse survivors. Thanks in large measure to the efforts of MLF, Joy House now provides education and job training, an early childhood education center, discussion groups, special classes, and an onsite mentoring and support network in addition to the shelter it was already providing.

Another example of how MLF has helped fill a gap in the housing market is a loan that MLF made in conjunction with the Housing Assistance Council. Together, the two organizations funded Arena Dorado, a self-help homeownership program for farmworker families in the colonias near Anthony, New Mexico. To participate in Arena Dorado, each family builds 65 percent of their home and moves in with a sweat equity investment and very low mortgage payments. An MLF loan has provided resources for the infrastructure - such as roads, water and sewer lines, and sidewalks - that has contributed to the development of 12.8 acres of raw land into 60 lots.

Challenges

One of the biggest challenges facing MLF is finding outside investors to support its continued growth. Currently, MLF is capitalized with investments from religious communities, health care organizations, foundations, individuals, and the Rural Development Agency of the U.S. Department of Agriculture. As of October 31, 2002, MLF's loan pool totaled about $17.6 million in 155 investments from 139 investors. MLF is, however, like many nonprofit and service organizations, facing a national economy that has fewer resources available for affordable housing development.

Unlike many community development financial institutions, which are often locally based, MLF has made loans in 22 states across the country. This means that the MLF underwriting staff must understand the lending conditions in a number of disparate markets. A challenge that MLF faces along with many other nonprofits is finding the means to compensate their employees in a way that will attract qualified candidates to the organization.

Still, the work that MLF is doing is critical to increasing the supply of affordable housing for low-income and special needs communities in this country. As Diane Leavesley, President of the Mercy Loan Fund said, "We are problem solvers. While most lenders present their product, we like to hear from an organization about their barriers to affordable housing development or preservation and help them overcome those barriers."

For more information, contact: Diane Leavesley, President, Mercy Loan Fund, (303) 830-3386, loanfund@mercyhousing.org, www.mercyhousing.org.