Rents Kept Low

Bond purchase helps retain renters at Cedar Valley Apartments
By George C. Ford
Gazette financial editor

July 8, 1999

Late Wednesday afternoon, a young family moved into a vacant apartment at Cedar Valley Apartments, 3000 J St. SW in Cedar Rapids.

That might not have been possible without the help of the Federal National Mortgage Corp. (Fannie Mae), the Federal Home Loan Bank of Des Moines and the MidAmerica Housing Partnership (MAHP).

Last year, the owners of the 186-unit apartment complex for low-income residents wanted to sell the complex, but wanted to assure that the tenants would not be displaced by significantly higher rents. MAHP set out to buy the apartment complex and keep the rents low enough to retain its residents.

Fannie Mae, in the first transaction of its kind nationally, agreed to purchase $4.74 million of low-interest bonds issued by the city of Marion to help MAHP finance the purchase.

The city acted as an intermediary, funneling the money to MAHP, which in turn will pay Fannie Mae principal and interest on the bonds.

The Federal Home Loan Bank of Des Moines issued MAHP a second mortgage for $279,000 to provide additional funds or rehabilitating the complex.

“It allowed MAHP to do the rehabilitation work more quickly and assured that there was enough financing to make repairs when they are needed,” said Joe O’Hern, director of Fannie Mae’s Iowa Partner­ship Office.

Franklin Raines, chairman of Fannie Mae, said the direct purchase of the low-interest bonds enabled MAHP to cut its transaction costs and keep rents as low as possible.

“The toughest thing in affordable housing is non-asset costs — the legal fees, transaction expenses, surveys and all the things that don’t have anything to do with bricks and mortar,” said Raines. “If you can cut those costs to a minimum, that immediately goes to holding down the rents.

“We were able to do that in this case and we’re hoping to replicate that in many cases around the country.”

Mary Schoen-Clark, president of MAHP, said 184 of the 186 apartments are leased. She said two-thirds of the units are reserved for families earning at or below 80 percent of the area’s median income.

Fannie Mae, through its Houselowa program, has invested $2 billion in low-income housing in Iowa, helping 31,000 families to achieve home owner­ ship. The $3 billion program is commit­ ted to helping 40,000 families over a five-year period.