Copyright, Daniel N. Hoffman.

All rights reserved. http://www.eahousing.com/Blueprintarticle.html

A Blueprint for
Employer-Assisted
Housing
Housing benefit programs are being developed by
employers and unions on an ad hoc or individualized
basis. Partly, this is a result of the lack of standardized
benefit packages being marketed to employers by the
shelter industries, or by personnel benefit consultants.
While the lack of standardized benefit plans does tend to
limit the knowledge base for the employers and unions
wishing to offer a housing benefit, this ad hoc or
customized benefit approach has encouraged some
useful experimentation which can ultimately serve to
inform employers and employees as to the
cost-effectiveness, administrative complexity, and utility
of various housing benefit approaches.

Housing benefits can be implemented in a variety of

ways, but most programs fall into one of two categories.
One category of program enhances the affordability of
existing housing enabling employees to obtain housing
already available on the market. Such programs, known
as demand programs, do not add to the regional supply
of affordable housing. The other category of program
can be described as supply oriented, these programs do
add affordable units to a regional housing market.
Demand programs more closely resemble other types of
personnel benefit programs in that employer involvement
is usually indirect and all eligible employees may access
the program at any given time. Supply programs, by
definition, limit the number of participants to the number
of homes being built or rehabilitated. Supply programs
can develop fee simple ownership housing, rental units,
or limited equity housing. Demand programs, currently,
tend to provide only homeownership opportunities.
At present, there are seven ways of implementing
demand programs and four ways of implementing supply
programs. Some methods within supply and demand
categories can be implemented with each other and
some methods between categories can be implemented
with each other, though the merging of supply and
demand programs within a single housing activity is less
likely.

The seven demand models are: group mortgage

origination, closing cost subsidies, mortgage guarantees,
group mortgage, insurance, down payment loans,
mortgage buy down programs and the purchase of
mortgage backed securities. The four ways employers
can provide housing supply assistance is by providing
sites, cash subsidies, construction financing or purchase
guarantees. What follows in a brief description of these
11 programs.

Demand Programs

1. Group Mortgage Orientation Plans- are essentially

volume discount programs whereby a mortgage lender
voluntarily reduces mortgage interest rates, closing
points, and/or application fees in return for a bulk
mortgage lending commitment or some other expectation
of a certain level of mortgage lending activity. The lender
subsidy will vary with the number of mortgages originated
and other market conditions, but in any substantial
program the value can be expected to approximate a 25
basis points (1/4%) reduction on the mortgage interest
rate and about one point (1%) lower on the closing costs.

2. Closing Cost Assistance Programs- arc usually

matched with group mortgage origination plans. An
employer offering a closing cost subsidy program can
pay closing points on a mortgage (usually 1-3% of the
mortgage). Another closing cost subsidy program that
employers can offer is to cover legal costs associated
with the purchase of a home. This benefit, particularly if it
includes title insurance, which lawyers usually offer or
arrange for, can be worth a thousand dollars or more.

3. Mortgage Guarantees - Employers can guarantee all,

or a portion of, a mortgage. By guaranteeing a mortgage
an employer can reduce lender risk. In return the lender
can reduce down payment requirements, offer more
flexible loan underwriting criteria, and waive private
mortgage insurance premiums (saving the borrower
about 1/2% annually).

4. Group Mortgage Insurance - offers the same benefit

to the employee as a mortgage guarantee program
does. To the employer the difference between the two
programs is that a mortgage guarantee results in the firm
incurring a contingent liability. An insurance program
enables the employer to transfer this liability to an
insurer in return for a premium.

5. Down payment Loans - Down payment loan programs

can be structured in several ways including, reduced
interest rate loans and deferred loans, but perhaps the
most interesting form being offered is a forgivable down
payment loan. Firms are discovering that they can afford
to forgive down payment loans if the rate of forgiveness
is equal to, or less than, the rate of employee turnover
and the cost of recruitment and training. By having the
loan forgiven over time (generally 4-6 years) the
employee has a powerful incentive to remain with the
firm. Conversely, if the employee does not remain with
the firm the loan can be structured so as to be due
immediately, and thus the employer can fully recapture
the investment in the employee. For employers
concerned with attracting and retaining employees,
concerned about employee turnover and training costs,
a down payment program can be a cost-effective and
riskless benefit.
6. Mortgage Buy down Programs- Firms offering
relocation programs are familiar with mortgage buy down
programs as the practice of subsidizing mortgage interest
rates is a mainstay of corporate relocation programs.
These programs pay multiple points at the time of
closing, usually 6-l6 points, driving down interest rates
100-300 basis points. Ten points on an eighty thousand
dollar mortgage is $8,000, a substantial sum for a
broad-based benefit program. For this reason many firms
will want to offer other types of benefit programs including
the next program discussed which can offer a similar
benefit at ultimately a lower cost. However, firms that are
in the finance sectors, banks, S & L's, and insurance
companies are familiar with the reduced interest rate
concept and they frequently offer what is essentially a
mortgage buy down benefit, by agreeing to hold a below
market rate loan in the lender's own portfolio.

7. Purchase of Mortgage Backed Securities - Mortgage

revenue bonds are commonly issued by local and state
agencies and many private real estate lenders.
Employers can request that these issuers issue taxable
bonds paying a below market rate, which the employer
would purchase. The proceeds from the bonds would be
used to fund mortgages or second mortgage down
payment loans for the firm's employees, and the
repayment of the mortgages would repay the employer's
bond. Thus the employer would actually earn a return on
a personnel benefit.

Supply Programs

The following supply program subsidies all result in a

developer (nonprofit or for profit) being able to build or
rehabilitate units al a reduced cost. As a result of the
employer assistance the firm's employees receive priority
access to the units created and a reduced sales price or
rental rate.

8. Housing Site Subsidy - Some firms may have excess

land suitable for housing development, while other firms,
or a consortium of firms, may be able to purchase a site
or even a building proximate to corporate facilities. By
selling at a discount, leasing, or donating the parcel to a
developer (nonprofit or for profit) housing affordability
and availability can be increased. Land can either be
held by the firm or firms, or leased to a developer or held
by a nonprofit or land trust

9. Construction Financing - Major corporations can

borrow short-term at or near the prime rate. Real estate
developers particularly nonprofit developers can borrow
only at much higher rates. Major employers could borrow
or guarantee loans for housing developers and by doing
so pass through the firm's borrowing capacity to the
developer. The result of such a program is substantial
savings in construction finance interest charges.

10. Cash - Employers are familiar with providing cash

infusions to projects, traditionally by making charitable
contributions. By providing corporate rather than
charitable contributions the firm can access units for their
employees. Cash contributions can be used to write down
construction costs or rent rates on apartments, or sales
prices on homes or condominiums, or to purchase shares
on behalf of employees living in mutual housing projects.

11. Purchase Guarantees - Building housing that is

meant for sale has certain risks for the builder. Perhaps
greatest among those risks is that the housing won' t be
sold. Employers can help eliminate this risk for a builder
by agreeing to purchase some number of units on a
certain date if those units are not sold by the builder. In
return the builder agrees to market the units to the firm's
employees at a substantial sales price discount. If the
specified number of units are purchased by the firm's
employees the employer is relieved of the responsibility
of purchasing units, and the benefit becomes, in effect,
costless.

By implementing any of these programs employers have

the opportunity to address important recruitment, training
and productivity cost issues by providing employees a
permanent valuable benefit. The specific program
undertaken will depend on the goals and problems faced
by an employer and the employees, but
employer-assisted housing is a benefit worth
consideration.