THE HABITAT MINNESOTA LOAN FUND

About the Fund
Over 1,800 Habitat for Humanity homes have been sold to partner families in Minnesota since the late 1980s. Like all Habitat for Humanity homes, these homes are sold with 0% mortgages. The Habitat Minnesota Fund allows us to act as a secondary market for Minnesota’s HFH mortgages. Affiliates pledge their homeowners’ monthly mortgage payments to the Fund. In return they get the cash value of the mortgage right away, rather than having to wait 20 to 30 years for the payments to come in. Funds can be used to accelerate home building, acquire land for large-scale projects, and as leverage dollars for other Habitat sponsors. Any Habitat for Humanity affiliate building homes in the State of Minnesota is eligible to apply for Loan funds.

Does the program work? Yes. Read the analysis of the first five years of the program. (PDF)

Loan Capital

Fiscal Year 2011 Loan Capital Available

The FY’11 Habitat Minnesota Fund consists of two active separate funding pools – the 21st Century Fund at $1.1 million and the Next 1,000 Homes Fund at $2 million. Total Funding available is $3.1 million.

The 21st Century Fund was established in 2000 with a $21 million, zero-interest loan from the Minnesota Housing Finance Agency (MHFA). Because HFH-MN holds this money interest free, we are able to loan 21st Century Funds to affiliates at 0% interest. The 21st Century Fund carries an 8% loan origination fee to help cover program costs. The loan term matches the term of the mortgage pledged to HFH-MN, on average 25 – 30 years. Repayments to HFH-MN from affiliates generate approximately $1.1 million annually, which is then available for re-lending to affiliates. As of June 30, 2010, approximately $29.2 million has been disbursed from the original loan of $21.3 million plus recycled funds, funding 403 mortgages.

The Next 1,000 Homes Fund is the FY’11 & FY’12 extension of the original Next 1,000 Homes Fund created in 2005 with a $10 million loan from MHFA, disbursed from 2005 to 2010. In September 2009, the MHFA Board of Directors approved an extension of the program for an additional two years of $2 million/year. The Next 1,000 Homes Fund of $2 million in FY’11 will be loaned to affiliates at 3% interest for a 30-year term. The origination fee is 2.25% of the amount borrowed. Affiliate repayments have to be used to repay the MHFA. As of June 30, 2010, approximately $10 million has been disbursed from Next 1,000 Homes, funding 120 mortgages.

Annual Funding Process

FY’11 Annual Funding Process - Timeline

The FY’11 Request for Applications was made available to all Minnesota affiliates on July 7, 2010. Please reference the FY’11 HFHMN Funding Allocation Request for Applications (Word) for details of program guidelines. Following is the FY’11 Loan Fund Allocation timeline:

Application – A complete Application consists of the following 7 items:

1. A detailed program and operating budget approved by the Affiliate Board for the upcoming year and a one-year monthly cash flow projection. A sample cash flow projection template is available at CashflowHFH.xls
2. Financial statements including a balance sheet, income statement and annual statement of cash flow for the most recent fiscal year.
3. A Mortgage Portfolio Quality Report for each mortgage or contract for deed held by the affiliate as of the last day of the most recent fiscal year. A copy of the form to be completed is available at MortgagePortfolioSummaryReportTemplate.xls
4. The affiliate Historical Summary of Sources of Support showing data for the previous three fiscal years and projections for upcoming fiscal year. A copy of the form to be completed is available at HistoricalSourcesofFundsTemplate.xls
5. A brief narrative of the affiliate's plan for housing production over the next five years.
6. A description of how HFH-MN resources will be utilized to accomplish housing production.
7. A Fund Development Plan that includes planned fund sources, amount, timing and the committee or staff person responsible for carrying out the fund development.     

Funding Criteria – The following 4 Criteria are used as a guide for loan approval:

1. Broad Allocation of Resources throughout the State
   The 21st Century Fund is allocated to HFH affiliates on the basis of a) the number of Minnesota Family Investment Program (the State’s welfare program to help low-income families with children) or “MFIP “ households residing within each affiliate’s service area compared to the statewide total and b) the capacity of the affiliate to build and grow home production. This is the State of Minnesota’s method to determine an allocation of funding based on need throughout the State.
2. Local Fund Raising
   Funding is intended to leverage affiliates’ local fund raising efforts. As such, HFH-MN loans are considered as matching funds to those raised locally. Each affiliate’s budget, Historical Sources of Support and fund development plan are reviewed to ensure no more than 50% of an affiliate’s program and operating support comes from HFH-MN.
3. Home Production
   An affiliate should be active in housing production and have a reasonable plan in place to continue to utilize HFH-MN loan funds for their intended purpose of increasing home production.
4. Credit Risk Rating (CRR)
   HFH-MN CRR system (Word) is used as a guide to the affiliates’ financial health, capacity and the related risk of an HFH-MN allocation. The seven criteria include the percentage of number and dollar amount of loans pledged to HFH-MN compared to the total portfolio of performing loans, cash on hand compared to budget, amount of accounts payable compared to cash on hand, amount of debt owed to other creditors, the percentage of delinquent loans in the affiliate portfolio, and the ability of homeowner payments to cover debt service payments on loans secured by pledged mortgages.     

Additional Funding Requirements – The following conditions pertaining to the affiliate and their Mortgage portfolio must be met at the time of application or disbursement and be maintained as long as the affiliate is a borrower of HFH-MN:

1. Must be in good standing with the HFH-MN, MN Secretary of State, the MN Attorney General's Office, and HFH-I.
2. Must have filed a current IRS 990 (when income exceeds $25,000).
3. The percentage of an affiliate's mortgages that may be pledged will not exceed 50% of the performing mortgages in an affiliate's portfolio both in dollar amount of principal outstanding and in number of mortgages, minus any mortgage pledged to another lender, as evidenced by a current Mortgage Portfolio Quality report at the time of fund disbursement.
4. Annual audited financial statements for affiliates with revenues exceeding $125,000 or assets exceeding $500,000.
5. Must submit quarterly financial statements and a quarterly Mortgage Portfolio Quality Report (Excel) for the entire loan portfolio for as long as the affiliate has an outstanding loan balance with HFH-MN.
6. Funds generated from homeowner loans pledged must be used for building in Minnesota.
7. Monthly payments for loans will be debited from the affiliate's checking account.
8. Outreach and marketing efforts need to ensure MFIP families are aware of the Habitat program in their area.
9. Before the loan disbursement, affiliate must provide a Borrowing Resolution for the amount awarded from their Board of Directors.     

1. The property must be covered by title insurance or an attorney's opinion as to status of title (title must be vested in homeowner and must be acceptable to HFH-MN), and by property and liability insurance (with affiliate named as loss payee).
2. The first mortgage loan amount may not exceed 80% of the appraised value of the home. The value of the property will be determined based on a copy of an appraisal submitted to HFH-MN.
3. Only mortgages can be pledged (not contracts for deed).
4. A professional servicer (PDF) (see information on Professional Servicing) must service all homeowner loans.
5. All homeowner loans pledged must be for property in Minnesota.
6. All homeowner loans pledged must be for families with incomes not exceeding 50% of the greater of state or county median incomes at the time the homeowner applied to Habitat for a home (see income limits for most recent income limits (PDF)). This income must be verified and documented by the affiliate.
7. Once pledged, homeowner loans cannot become more than 90 days delinquent – at this point the affiliate must provide replacement collateral.
8. No homeowner loans will be accepted as collateral if the homeowner has been more than 60 days delinquent in the past 12 months. New homeowner loans may be pledged – the payment history does not have to be long.
9. Outside subordinate financing (home equity loans) may not be placed on any loans pledged as collateral without approval of HFH-MN.
10. A flood plain determination must be completed for any pledged loan; and if a pledged property lays in a flood plain all appropriate and recommended remedies must have been taken.     

Disbursement Request
Once approved for an Annual Allocation, affiliates must submit a request for Disbursement. Affiliates can request disbursement anytime after the Allocation is awarded, up to June 30th of that fiscal year.

The Disbursement Request consists of the following materials:

1. A Disbursement Request Form (PDF)
2. The first 4 pages of last year’s IRS Form 990
3. A Mortgage Information Sheet for each mortgage to be pledged and the following attachments:
   a) Copy of recorded first mortgage
   b) Copy of promissory note
   c) Homeowner payment history for mortgage to be pledged
   d) Appraisal
   e) Title Policy or Title opinion
   f) Homeowner application and copies of verification of income documents
   g) Homeowner’s property insurance statement showing that it is current
   h) Copy of Flood Plain determination
4. A Borrowing Resolution from the Affiliate Board of Directors stating:
   1) the new amount to be borrowed during the current year (by program, if necessary),
   2) the approximate principal balance of the total debt outstanding (maximum and by program if necessary), and
   3) the authorized signatories for the loan documents.
        

1. A Promissory Note or an Amended Note between HFH-MN and the affiliate for the total amount to be repaid at the time of closing.
2. A Loan Agreement and Security Agreement, or Amended Loan documents.
3. A Loan Certification that outlines the outstanding principal balance at the time of closing and monthly payment for all loans pledged to HFH-MN. Your monthly payment to HFH-MN will equal the sum of the homeowner monthly payments of the pledged loans.
4. An Assignment of Mortgage for each mortgage pledged which will be recorded in the appropriate county.
5. The original Homeowner Promissory Note endorsed to HFH-MN. It is absolutely necessary for you to have the original note in order to close the loan.
6. An Authorization to Debit your bank account automatically for the amount of the monthly payment.
7. A Disbursement Authorization that we will sign authorizing our trustee to automatically credit your bank account for the amount of the disbursement.     

Habitat for Humanity of Minnesota
Office: 2401 Lowry Ave NE #210
Minneapolis, MN 55418
Phone: 612.331.4439
Fax: 612.789.0846

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