Church Loan Made "As Safe As Possible" By Four New York Credit Unions

BRONX, New York – Many financial institutions shy away from making loans to churches out of concern that should these community-based houses of worship default on their loan, a public relations nightmare could occur when it comes time for the financial to foreclose. Four New York City-based credit unions have bucked the trend by delivering a $345,000 loan to the 200-member Bronx Community Baptist Church. The 12-year loan at 8% interest, with a 30-year amortization, is for the purchase of the storefront the church has been operating in, plus a neighboring storefront to be used for church functions, community meetings, rental purposes and – a long-term goal – a day care center. Three of the four participating credit unions have worked together in the past on participation loans. They include Bethex FCU in the Bronx, and Union Settlement FCU and Homesteaders FCU, both in Manhattan. Each of these credit unions contributed $100,000 in the church loan (based on capital regulation limits). After a search for a fourth credit union partner, Brooklyn Ecumenical FCU agreed to lend the final $45,000 to the deal. One of the important issues that made the loan possible was the creation of a not-for-profit entity, The Bronx Community Church Development Fund. A board member at Union Settlement FCU with experience as an investment banker and business loan packager in the real estate industry recommended the creation of the not-for-profit organization. “This was a safety precaution,” says Bent. “We felt that an entity separate from the church hierarchy would be perceived well by regulators. I guess in the long-run – God forbid – if we had to foreclose, we would also be foreclosing on a development corporation and not a church.” The total property value was $460,000 with the agreed-upon loan having a 75% loan-to-value ratio. In addition, four church trustee members, including the pastor, were made guarantors. According to Bent, they are personally responsible if the Bronx Community Development Fund did not pay the loan. “The one thing our attorneys and their (guarantors’) attorneys had to do was make them fully aware of what the responsibilities entailed, because even though they were saying `yes,’ they weren’t really positive to what they were committing to,” she says. The 8% interest rate sounds high in this current climate of low mortgages, but Bent says this is more of a business loan than a mortgage. She adds, “There was a little bit more risk associated with the loan, so we needed to mitigate that by charging a higher rate of interest. “We felt we were being quite fair with the church. We had discussions with administrators as to what they could afford, and they always have the option, once the loan is seasoned, to refinance,” says Bent. The need for the loan emerged when the building in which Bronx Community Baptist Church was located, 2072 Valentine Avenue, went up for sale. In addition, the owner was selling the commercial building next door, 2074 Valentine Avenue, once the site of a restaurant. The second floors of these two buildings contain two Section-8 apartments. The church originally searched for a loan on its own. It then approached a broker who could better package the property. Refused by Chase Bank, the broker then turned to Bethex Federal Credit Union and its manager Joy Cousminer. Cousminer approached Union Settlement to be the lead player in the negotiations because of its experience with real estate lending. “We had the knowledge and expertise,” says Bent. “We knew what questions to ask, how to best secure the debt for all concerned and knew we could expedite the loan as quickly as possible.” Although a church loan is risky, the four credit unions still proceeded with the venture because “the four of us feel we are here to support the community . . . even though a need may involve us doing an unusual loan,” says Bent. Union Settlement FCU, Bethex FCU and Homestead FCU are part of New York financial Network Action Consortium (NYCfNAC – pronounced knickknack), which also includes Lower East Side Peoples CU. NYCfNAC is consortium of community development credit unions in New York City that serves the low-income residents. Last year, these credits unions, along with CSAE FCU, banded together to provide Rite Check Cashers with a $500,000 loan to remodel the interior and exterior of the check cashing institution’s home office and store located at 715 East 138th St. in the Mott Haven section of the Bronx. Brooklyn Ecumenical FCU volunteered to participate after Bent contacted the National Federation of Development Credit Unions. “I spoke with Keith Bond, the technical assistant director at the Federation to see if there was a credit union willing to build its loan portfolio and do a participation loan,” recalls Bent. “Elizabeth Shoy, manager at Brooklyn Ecumenical was contacted. She asked me to fax over the loan information. She brought it to her board and they said yes. It became a done deal.” -