Gone are the days when a faith-based institution or church could simply walk into a bank and make a loan request or an adjustment on an existing loan.
According to Dr. Richmond McCoy, president and CEO of UrbanAmerica Advisors, big banks are pulling out of the real estate business.
“They are not picking on churches,” he said. “They have just come to realize it is no longer a lucrative business for them anymore.”
As a result, McCoy and his company are putting on an informative seminar, targeting faith-based institutions in Orlando, FL. The purpose of the meeting is to help churches get an understanding of the depth of their problem, McCoy said.
“The urgency, and the size and magnitude of the financial crisis that faith base entities have to deal with are important. Our mission is to equip people with knowledge to get them to understand what is going on in the financial business.”
McCoy has 20 years of experience with faith-based entities, he said. Because he understands how to operate in these markets, he felt it necessary to get involved in some kind of way.
“This is not new. But over the last year I have had all my pastor friends call me up for advice,” he said.
Where at one time there was less than a one 1 percent default rate in terms of churches not being able to pay their loans, now that number is up to 18 percent, reports McCoy.
Even those churches that are current on their mortgages are in trouble.
McCoy said those churches are in technical default. That means if the banks required them to pay off their loans today, they would not be able to make those payments.
“The value of the real estate has decreased so much over the last three years,” McCoy said. “Many churches cannot keep up with their loans because giving is down. Part of that reason is due to unemployment.”
Dexter Johnson, pastor of Higher Ground Empowerment Center in Atlanta, GA reports that is part of what happened to them.
A series of unforeseen issues which included a natural disaster and the collapse of the real estate market triggered a three year long battle between his church and the bank which services their mortgage loan.
“We took out a loan to do some serious renovations on the church while also acquiring financing to purchase some land near the church. The plan was to build a community center, multi-purpose living, subdivision, etc as a means of doing ministry and also bringing other income into the ministry,” Johnson said.
However, they could have never foreseen what would come next. In March of 2008 a rare tornado ripped through Atlanta, tearing up their church and causing them to be displaced.
“In the midst of all that was happening, parishioners started losing jobs, while others left the church which caused a decline attendance resulting in a decline in offerings,” Johnson said. “People had to decide between gas in their car or the church. They chose gas and I do not fault them for that.”
They made an attempt to get a loan re-modification, but the bank was not interested in re-negotiating, Johnson said.
“One day called us in, said they would not be servicing our debt any longer and that we needed to find another institution.”
McCoy said this is the reality of what is going on now. And it does not help that banks are not being pressured by the federal government to deal with or solve their loans.
“Put that all together with general devaluation, you are in deep trouble,” he said. “Banks are not making money, so they are getting out of the business in the next 2 to 5 years. They are moving on to something else. They make a lot of money doing credit cards, auto loans, student loans, things that have very little risk. They are not doing much residential loans.”
But McCoy wants to make it clear that this “crisis” is not exclusive to churches. Small businesses looking to borrow money are also having this problem.
“What we are trying to do is make churches stronger businesses. The real message here is that we are here to put out a clarion call to this community,” McCoy said. “They have a real crisis on their hands and need to be made aware of that reality.”
Johnson has faith. He believes either someone will come forth, writing a check big enough to forgive the debt or they will find a new institution to service the loan. Or someone will buy the building and allow the church to lease it from them.
In the meantime, their work continues.
“We walk by faith and not by sight. In three years I have known churches that have been foreclosed,” Johnson said. “We are still standing by the grace of God. We bend, but we don’t break.”
Should Johnson and others divorce themselves from their faith? McCoy says no. However, he also wants churches and their leaders to be more equipped and versed in dealing with this issue.
“It is a matter of understanding what is happening in the financial market, debt market and real estate market and position yourself so that you can survive,” he said. “A big part of this is also getting churches and their leaders to understand they did not do anything wrong; this is not a contest between you and the bank. This is not a political issue. You have to deal with the business side of this. That is what this is.”