Colonia Redevelopment in Texas

A 1994 Texas Department of Housing and Community Affairs study found that 83 percent of the families in the Cameron Park colonia in Brownsville, Texas had annual household incomes below $10,000, and 56 percent earned less than $5,000 per year. Another study revealed that 80 percent of the housing units in the Cameron Park colonia were substandard or dilapidated. In 1996, the state of Texas selected the Community Development Corporation of Brownsville (CDCB), a non-profit housing development organization, to create the Cameron/Willacy County Self-Help Center. The Center was designed to serve five colonias, four in Cameron County and one in Willacy County, by facilitating the rehabilitation, reconstruction, and new construction of safe, sanitary, and affordable housing. In 1999, CDCB's Colonia Redevelopment Program received three awards for their successful work: Fannie Mae's Eleventh Annual Maxwell Award for Excellence, the Federal Home Loan Bank System's national Community Partnership Award, and the Texas Department of Housing and Community Affairs Excellence in Achievement Award.

CDCB
For nearly three decades, CDCB has been assisting low-income families in Brownsville to become homeowners through programs that include below market financing, quality construction, the use of efficient home designs, and targeted outreach. Some of CDCB's most acclaimed work, however, has been with the colonias in Cameron County.

Colonias: The Reality
Colonias are unincorporated settlements that typically lack basic water and sewer systems, paved roads, electrical services, and safe, sanitary housing. These poverty-stricken neighborhoods flourish along the U.S.-Mexico border, and in particular, in Texas, where the burgeoning border- area population often outpaces the availability of safe, decent, and affordable housing. Dilapidated homes, a lack of potable water, inadequate sewer and drainage systems, and floodplain locations make many colonias subject to the proliferation of disease. Low incomes, high unemployment, unpaved roads, and the fact that most residents purchase their properties on a contract for deed, only exacerbate the conditions that liken many colonias to developing countries. Most colonias have a very limited property tax base, and nearby cities are reluctant to annex the colonia because of an unwillingness to share the financial burden of providing services to residents.

The Colonias of Cameron County
The colonias of Cameron County have some of the worst conditions in all of Texas. The Cameron Park colonia, with over 6,000 residents, is the largest colonia in the country. According to 2000 Census per capita income data, it is also the poorest community in the United States.

The average annual colonia income in Cameron County is $7,800, compared to $8,500 in Texas. Only 30 percent of the Cameron County colonia population has access to outhouses or cesspools, leaving 70 percent of the Cameron County colonias without access to even the most rudimentary plumbing systems. Over 83 percent of the county's colonia housing is substandard or dilapidated. This significantly exceeds the statistic for the remaining Texas colonia population.

CDCB: Financing and Reconstruction
CDCB began its work in the colonias by rehabilitating colonia homes and connecting them to newly installed water and sewer systems. When CDCB reviewed its costs, it realized that compared to rehabilitation, fully reconstructing dilapidated housing often results in a better product for less money. Since the inception of the project, CDCB has rehabilitated a total of 42 homes, reconstructed 100 homes, and constructed 20 completely new homes.

CDCB's most innovative contribution, however, may well be its colonia loan product. At the inception of CDCB's program, it used subsidies alone to finance the $10,000 to $25,000 that it costs to rehabilitate and reconstruct colonia homes. The financial burden of the heavily subsidized program, compounded by shrinking Federal and state housing budgets, soon forced the CDCB to seek out a more viable funding alternative.

Today, the Rio Grande Valley Multibank (RGVM), a for-profit multibank community development financial institution (CDFI), lends 50 percent of the funds for each reconstruction, and CDCB subsidizes the remaining 50 percent. RGVM, in association with four of its member banks - JP Morgan/Chase, Wells Fargo, Texas State Bank, and International Bank of Commerce - has committed $2.4 million to CDCB over the next four years, utilizing a unique and flexible underwriting standard. The unique feature of the underwriting is that it is not based on credit scores or on qualifying ratios, but on a homeowner's disposable income being equal to one month of principal and interest.

To encourage the banks to make loans using these flexible underwriting standards, CDCB designed a guarantee program to secure the banks against a large loss in case of foreclosure. CDCB set up two reserve accounts funded by a HUD Rural Housing and Economic Development grant:

• Loan Loss Reserve - a percentage of the bank portion of the loan is set-aside for the first 10 years of the loan term.
• Payment Reserve - three months of principal and interest are set aside to guarantee recipients an additional three months in the event that a mortgage payment cannot be made.

Nick Mitchell, the Housing Programs Manager at CDCB, summed up the philosophy of CDCB when he said, "The key to colonia lending and redevelopment is to engage private lenders and builders, and use loan guarantees to encourage them to participate in the development."

The RGVM has made millions of dollars available for loans to colonia residents. Along with CDCB, it has facilitated development in unincorporated, previously overlooked communities through an understanding of both the culture and financing needs of the colonia residents. Development corporations and finance authorities around the country are looking to CDCB as a model for the future of Redevelopment and affordable lending. Lee Kirkpatrick, President of Texas State Bank-Brownsville and Chairman of the Rio Grande Valley Multibank, praised the program's innovative design and leveraging of private-sector lending sources. Kirkpatrick observes with: "We see the Rural and Colonia Loan Program as a model of lending that can be implemented not only in Cameron, but in other counties along the border as well…HUD's willingness to offer funds to effectively leverage participation of private-sector banks, in my mind, marks a new approach to using public funds to spur private sector investment in our community."

For more information, contact: Nick Mitchell, Housing Programs Manager, Community Development Corporation of Brownsville, (956) 541-4955, nmitchell@cdcb.org