Bulletin #6
June 30, 2005
At the
Our finance group advises that this is not so simple. There is extensive governmental control over mortgage companies and corresponding overhead that favors large companies, but is prohibitively expensive for what we had envisioned. In addition, our finance group discourages any approach that would be in direct competition with local banks. Fortunately, they have an alternative to suggest.
Mezzanine funding is a form of financing that addresses the gap between what conventional mortgage lenders would provide and the potential needs of our future homeowners. Specifically, it consists of various forms of financing to cover 30% to 40% of the debt. In its simplest form, this might be a second mortgage, but many other alternatives exist. In our case, we would seek to form a local investment fund that would be motivated to fill this gap with modest returns (or possibly tax exempt returns) on these investments. We would then seek to find mortgage companies that would provide favorable terms on the remaining 60% to 70%. This would be a reasonable expectation since the risk to the mortgage company is reduced. The aggregate interest rate would be a point or two below what the homeowner could otherwise obtain.
We know at this point that mortgage companies have a great deal of flexibility on eligibility and that we can justify that flexibility if we can reduce life cycle costs of housing. Flexibility on rates is more difficult, but still possible.
Over the next two weeks, this group will pursue this approach including research into the relevant tax issues and detailed discussions with a local bank.
Signed,
Lee Sturdivant,
Paul Losleben and Steve Garrison,
Sandy Bishop,
As always, our most recent publications are posted at our
website http://orcasresearch.org/
and you can contact us at any time at Losleben@rockisland.com or Garrison@rockisland.com
Tax deductable donations to help support the Housing Project and to help pay for materials and supplies are gratefully accepted through Navigating Our Future, Housing Project, PO Box 298, Deer Harbor, WA 98243. This is a totally volunteer effort, so your help is appreciated.