It took only four minutes last July to spur 1,400 phone calls to the Federal Home Loan Bank of New York, plus 28,000 hits to its web site. That's what happens when people discover that their local Federal Home Loan Bank (which probably few had ever heard of) says it is giving $5,000 to families seeking a first home.

The stampede was started by a four-minute news item on New York's Channel 9 that focused on the New York FHLB program dubbed "The First Home Club."

Yet nine other Federal Home Loan Banks offer comparable programs, and the 10 FHLBs have given away about $90 million since the program began in 1995. The give-aways were made possible by the 1995 amendments to the Affordable Housing Program, which mandates that each bank devote 10% of its net income to support low-cost housing. The amendments said 15% of that may be used as direct subsidies to prospective homeowners.

And the 15% is being raised to 25%. The funding increase will become official in September or October, but the Federal Housing Finance Board issued a waiver of AHP regulations in May to allow the FHLBs to immediately increase their set-asides to 25%.

"There are two sides to the issue," says Steve Hudak, spokesman for the Finance Board, the regulator of the Federal Home Loan Banks. "The set-asides seem like an efficient way to get AHP funds into the communities, and there's demand for it. But on the other hand, multi-family and rental housing could also use the money." Surprisingly, most FHLB officials interviewed didn't mention the increased allocation.

For some, the original 15% allocation has been sufficient. "We've been setting aside 10% and that's been enough," says Alfred DelliBovi, president and CEO of the New York FHLB. "If there's an increase in demand, having the flexibility to go up to 25% would be nice, but we've been comfortable so far with 10%."

But some experts suggest that, in the aggregate, the proposed increase would be too small to make much of a difference. Many FHLB officials view the AHP as a nuisance, and their set-aside programs are not high priorities, according to an expert who asked not to be identified.

In fact, two of the dozen FHLBs, Boston and Dallas FHLBs chose not to create set-aside programs at all. "There's such a diverse array of communities in our district," says Mark Zelermyer, spokesman for the Boston FHLB. "What would work in a very dense urban setting like Boston wouldn't work in Mystic, CT." Zelermyer claims it's more effective to let the member banks format their own local homeownership programs, rather than creating a blanket set-aside.

Even so, Boston and Dallas use the competitive 100-point AHP scoring process to give an edge to members with first-time homebuyer initiatives, matching the agendas of many of the set-aside programs.

The homeownership set-aside funds are distributed through participating member banks. The members award subsidies, averaging $5,000 — up to a maximum of $10,000 — to eligible households for down payment and closing cost assistance. Once the homeowner receives the money, the only requirement is that the family remain in the home for five years or sell it to another eligible homebuyer.

New York's DelliBovi developed the idea for the homeownership set-aside program while he was Secretary of the Department of Housing and Urban Development from 1989 to 1992. "Whenever I went around the country, the issue of homeownership for low-income people always came down to a lack of down payment and closing costs," says DelliBovi. "Very often I found that if these folks could get into homes, their monthly housing costs would be no more — and very often less — than their rent."

Set-Aside Program Awards
  Money Awarded ($ thousands,
rounded to nearest $5,000)
1998 1999 2000 2001
Atlanta 1,000 1,000 1,000* 4,000**
Chicago 1,895 1,920 1,850* 775**
Cincinnati 1,200 2,400 2,400* 3,200**
Des Moines 1,415 1,365 1,525* 1,475**
Indianapolis 1,660 1,500 1,825* 3,825**
New York 1,900 1,700 2,300* 3,000**
Pittsburgh 625 2,400 1,745* 2,000**
San Francisco N/A N/A 2,400* 6,600**
Seattle 760 3,345 3,270* 4,500**
Topeka 250 250 920* 1,500**

*Funds are projected --
   all money has not yet been distributed
**Chicago -- as of 6/30/01,
   Pittsburgh -- as of 7/15/01

Following the Channel 9 broadcast, HSBC Bank USA, a member bank featured on the program, also was inundated with phone calls. "The phenomenal response indicates that the First Home Club is a program that meets a lot of people's needs," says Phyllis Rosenbaum, senior vice president of HSBC. "Homeownership is still a huge piece of the American dream, and ways that make homeownership more accessible are of great interest to people."But the response may have been a bit too overwhelming. "It's not a great program to market in mass media because it's very specialized," adds Rosenbaum. "We don't want to dangle it in front of people who find out they can't qualify. It's very sad for us to tell them that their dream can't come true."

A household applying for grant money must meet very specific qualifications. For example, all families seeking funds must be below or at 80% of their area's median income. And although the 10 programs follow the same guidelines, each FHLB takes a different approach.

Some devote all their attention to rural home-seekers. According to Chris Imming, first vice president of the Topeka FHLB, Topeka's "Rural First-Time Homebuyer Program" was established in 1997 to give small rural households a chance to benefit from AHP funds, which had been going primarily to large urban institutions.

Brad and Geneva Ruzicka, newlyweds from Grand Island, NE, received a $5,000 grant through the Rural First-Time Homebuyer Program. They were in a rush to find a home after learning that they were expecting their first child and their apartment building preferred no children. With the help of $5,000 from the United Nebraska Bank, a Topeka member, the Ruzickas were able to make a down payment on a house within a few months. The couple moved in just weeks before their son, Isaac Andrew, was born.

The Des Moines FHLB also focuses exclusively on rural areas to help them compete with nearby urban districts for AHP funds. To further bolster its rural members, Des Moines last year opened its set-aside program to people who already had purchased homes, not only to first-time buyers. As a result, it changed the program's name from the "First Home Fund" to the "Rural Homeownership Program," although first-time homebuyers still are favored in the program. First-timers can qualify for as much as $5,000, while non first-timers can only receive up to $2,500.

Member banks had asked for the change because of the limited number of first-time homebuyers in rural areas, says Curt Heidt, vice president and community investment officer at the Des Moines FHLB. "In these small markets, there are not hundreds of people looking for a house," he says. Heidt also described the new program as "an economic development idea," providing incentive for current homeowners to upgrade to more expensive homes, leaving the less expensive residences available for lower-income first-time homebuyers.

Marietta Nuñez, community lending manager of the San Francisco FHLB, suggests that the majority of people at the required income level (at or below 80% of the median) are automatically first-time homebuyers. Even though San Francisco's "Individual Development and Empowerment Account" (IDEA) doesn't require first-time homebuyers, Nuñez says all of its participating households fall into that category.

The size of the subsidy amounts differs widely from district to district.

The first IDEA grant awarded in Northern California was for $10,000. It went to Wendy Ducos, a single mom from Modesto, who lived with her 12-year-old son, Christian, in a publicly subsidized apartment. Ducos was determined to get herself off public assistance, and found out about the IDEA program through the Stanislaus County Housing Authority Family Self-Sufficiency Program in which she was enrolled. She saved for months while trying to complete a college degree in accounting. After completing the program, Ducos combined the $10,000 grant from the Farmers & Merchants Bank of Central California with $7,200 she had saved on her own, and was able to move into her first home with Christian.

The Finance Board mandates that each household participating in a set-aside program is eligible for a maximum $10,000 of grant money. Yet the IDEA Program at the San Francisco FHLB is the only set-aside currently offering each household the maximum $10,000 subsidy. "The cost of housing in our district is extremely high," says Nuñez, of the San Francisco FHLB. "We wanted the maximum amount of impact, so we offer the maximum amount of money."

By contrast, the New York FHLB offers only $5,000 per homebuyer. HSBC, a four-year participant in the First Home Club program, is disgruntled by New York's failure to bring its household subsidy amount closer to the maximum $10,000. "We would like it to be more than $5,000, and we've made these feelings known to the Federal Home Loan Bank," says Rosenbaum, senior vice president at HSBC. "That amount might be fine for upstate New York, but for the metropolitan Manhattan area, $5,000 is not enough. Most of the people who take advantage of the program need a good deal more. Closing costs alone would probably eat up the entire $5,000."

When asked about HSBC's complaint, New York FHLB president and CEO DelliBovi replies, "If you raised the maximum subsidy to $10,000, it might get you closer to the need in Manhattan, but it would be a lot more than is needed in lower-cost housing areas like Buffalo. Maybe we could start using regional differentials. I'm not sure. But I understand the need, and it's something that we're looking at.

The FHLBs take great pride in making sure individuals being awarded subsidies have the knowledge and responsibility it takes to own a home. Every set-aside program requires that participating households complete a homebuyer counseling course in order to qualify for the grant. "It's the neatest, most important part about the program," says Jennifer Ernst, AHP manager at the Seattle FHLB.

Some FHLBs also require households to set up special savings accounts as a condition for receiving funds. The amount of the subsidy is then determined in proportion to the amount of savings built up in the account. The account jump-starts the formation of savings required for the mortgage, and also proves that the home-seekers are responsible and committed to achieving homeownership. "It really speaks to the desire that these people have to get a home. Putting aside money is a large accomplishment," says Nuñez, of the San Francisco FHLB, whose IDEA program matches money three-to-one in a savings account set up through the program.

The Pittsburgh FHLB's "Home Buyer Equity Fund" had required a special savings account to match funds, but recently eliminated the feature. Pittsburgh now matches whatever funds the household can provide. "We found that it was a constraint on the program," says John Bendel, director of community investment at the Pittsburgh FHLB. "It restricted a lot of people and turned off a lot of potential customers."

The Cincinnati FHLB's "Welcome Home Program" asks for a $500 down payment instead of matching funds from a special savings account and finds that the system works. The program recently awarded a $3,750 grant to Trevor O'Neil, a young man who was seriously injured in a car accident in 1991 while attending Western Kentucky University. O'Neil spent seven months in a coma, and the next two years in intensive rehabilitation, which completely drained his financial resources. But through Cincinnati's Welcome Home Program, the Commonwealth Bank and Trust Co. of Louisville gave O'Neil a $3,750 grant, which he used toward the purchase of a condo.

Adding to their long lists of requirements, approximately half of the set-aside programs insist that a participating household have its mortgage financed by whichever member provides the grant. "It really is a lot of work and in the end, not to become the mortgage lender seems very frustrating to me," says Rosenbaum of HSBC, pleased that the New York FHLB has such a requirement. "We really want these folks to have a relationship with us."

On the other hand, the Topeka FHLB allows any bank to finance the mortgage of a participating household to give the small community banks in Topeka's' district a chance to participate. "Being small-town banks, they're usually more than willing to get involved with the Rural First-time Homebuyer Program, even if they don't finance the mortgages," explains Imming of the Topeka FHLB. "It gives our local members something they can bring to the table." Awarding a homeownership subsidy provides the opportunity for great public relations and also helps with a member bank's rating under the Community Reinvestment Act.

Since the grants are essentially "free money," the Federal Home Loan Banks do not benefit financially from the set-asides. When asked to explain the FHLBs' motivation for getting involved, Ray Christman, president and CEO of the Atlanta FHLB, replied, "Homeownership is one of the keys to a more stable and prosperous quality of life. Our interest is in promoting community development by increasing homeownership."

Federal Home Loan Bank Homeownership Set-Aside Programs
Location Program Description
(Members have some flexibility to adjust the programs)
Atlanta First-Time Homebuyer Program
$5,000 max per household • $100,000 max per member • household must contribute $500 of own funds for down payment • first-come, first-serve • first-time homebuyers only • no rural requirements • member must finance mortgage • cannot be combined with other AHP funds
Out of 100 possible pts in competitive AHP program, awards 5 pts for first-time homebuyer initiatives, with 2 pts for pre-counseling and 2 pts for post-counseling, for a possible total of 9 pts.
Chicago Downpayment Plus Program
New York$3,000 max per household • $100,000 max per member; additional $25,000 available to participants in Mortgage Partnership Finance Program • no minimum amount of funds required from household • first-come, first-serve • first-time homebuyers only • no rural requirements • member must finance mortgage • cannot be combined with other AHP funds
Cincinnati Welcome Home Program
$7,500 max per household • $37,500 max per member • household must contribute $500 of own funds for down payment • lottery • first-time homebuyers only • 50% rural areas, 50% urban/small cities • member must finance mortage • can be combined with other AHP funds
Out of 100 possible pts in competitive AHP program, awards 1 pt for each 20% of housing units targeted toward first-time homebuyers, for a possible total of 5 pts.
Des Moines First Home Fund -Rural Homeownership Fund
$5,000 max per first-time homebuyer; $2,500 max per non-first-time • $25,000 max per member in first reservation period; $50,000 max per member in second reservation period (if all funds are not reserved in first period) • household must contribute $500 of own funds for down payment • lottery • rural areas only • any bank can finance mortage • cannot be combined with other AHP funds
Indianapolis Home Savings Program
$5,000 max per household • $200,000 max per member • 2-to-1 match of savings acct • first-come, first-serve • not limited to first-time homebuyers • no rural requirements • any bank can finance mortgage • can be combined with other AHP funds
New York First Home Club
$5,000 max per household • limit per member based on Bank's discretion • 3-to-1 match of savings acct • first-come, first-serve • first-time homebuyers only • no rural requirements • member must finance mortgage • can be combined with other AHP funds
Pittsburgh Home Buyer Equity Fund
$5,000 max per household • no limit per member • 3-to-1 match, no required savings acct • first-come, first-serve • first-time homebuyers only • no rural requirements • member must finance mortgage • can be combined with other AHP funds
San Francisco Individual Development & Empowerment Account Program
$10,000 max per household • no limit per member • 3-to-1 match of savings acct • first-come, first-serve • not limited to first-time homebuyers • no rural requirements • any bank can finance mortgage • cannot be combined with other AHP funds
Seattle Home $tart Savings Program
$5,000 max per household • $150,000 max per member • 3-to-1 match of savings acct • all participating members receive initial $20,000; remaining funds first-come, first-serve • first-time homebuyers only • no rural requirements • any bank can finance mortgage • cannot be combined with other AHP funds
Topeka Rural First-time Homebuyer Program
$5,000 max per household • $50,000 max per member • household must contribute $500 of own funds for down payment • first-come, first-serve • first-time homebuyers only • rural areas only • any bank can finance mortgage • cannot be combined with other AHP funds

*Not actually a set-aside program

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