AP: Churches and their Lenders Suffer After Boom Years Borrowing

Our "borrow, borrow, borrow - spend, spend, spend" culture pervaded every facet of society. Even the churches. This recession is so severe that even the megachurch is threatened; has the credit crunch no shame? Just another step to "right sizing" America, reverting to a sensible mean, and stopping the excesses that hit every corner of the consumption culture.

• Foreclosures and delinquencies for congregations are rising, according to companies that specialize in church mortgages. With credit scarce, church construction sites have gone quiet, holding shells of sanctuaries that were meant to be completed months ago.
• Congregants have less money to give, and pastors who stretched to buy property in the boom are struggling to hold onto their churches.
• Metropolitan Baptist Church was bursting out of its home. From a group of freed slaves in Civil War-era Washington, Metropolitan Baptist had grown into a modern-day megachurch and community service powerhouse. In 2006, construction began on the congregation's dream complex in Largo, Md. -- a $30 million campus with a 3,000-seat church, an education center and an 1,100-car parking lot.
• Last year, the congregation sold its church in Washington. But on Oct. 20, their plans were abruptly put on hold. The Rev. H. Beecher Hicks learned that financing for the project had dried up. Construction stopped. And the congregation found that it was homeless -- reduced to renting space and struggling to find new financing.
• "The economy has dramatically changed over the last year to 18 months in a way that very few, if any, had expected," said John Stoffel, administrative pastor at Seabreeze Church in Huntington, Calif.
• Seabreeze spent about $12 million on a new complex that was completed in 2007. But a drop in donations, partly due to a rift between the pastor and some church members, forced the church to renegotiate for an interest-only mortgage. (sigh) Stoffel said Seabreeze hasn't missed a payment, yet the mortgage is far from the church's only debt. The church also owes $1.2 million -- due this year -- on bonds that helped finance the project, and must repay a $200,000 loan that a couple took out on their house to help Seabreeze cover its costs. (sigh)
• It's hard to quantify just how many churches are at risk. Foreclosure records are scattered throughout county offices nationwide. Completing a foreclosure takes months or longer, so it's too soon for many failures to show up on a company's books. In financially stressed churches, clergy are often reluctant to discuss their plight. They don't want to alarm their congregants, and they fear that any complaints about their dealings with banks will backfire.

Across the country, congregations large and small are struggling to pay off debt:

1. Reliance Trust, an Atlanta company that is trustee for nearly three-quarters of the church bonds in the U.S., has seen "some increases in delinquencies," said spokesman Tony Greene, though he would not elaborate. Among its clients is Temple Beth Haverim in Agoura Hills, Calif., which sought Chapter 11 bankruptcy protection last July and owes the company more than $7 million, Reliance said in court documents. The property is estimated to be worth less than what the synagogue owes.
2. Strongtower Financial, an arm of the California Baptist Foundation, said in a prospectus that 10 percent of its $119 million in outstanding loans were in default as of March 31, 2008, its most recent required reporting date. (I imagine it has gotten much worse since in Q1 2008 we were not even in a recession according to government data)

These problems may seem minor compared to the epidemic of foreclosures on private homes. But church mortgages have always been considered one of the more solid investments, with lenders often boasting of only one or two foreclosures over a billion dollars in loans. Even in bad economic times, people still go to church, which helps shield congregations from downturns, lenders say. (unless you do silly things like interest only mortgages) Churches also have more flexibility than some other borrowers in cutting expenses. They can end charitable programs or trim staff and still stay open for business.

However, the recent boom years brought changes that made the industry more vulnerable. (where have I heard that one before?) Firms looking for new lending opportunities in a time of easy credit entered the industry, and competition escalated. The size and number of church loans skyrocketed, with several companies reporting double-digit annual growth rates before the bust.

Some lenders even got into the business of securitizing church loans, combining them as an investment in the way banks did with home mortgages. (aye carumba! is nothing not securitized in this country) In 2006, Strongtower Financial, based in Fresno, securitized church bonds for the first time, with a $56.3 million offering. Roland Leavell, president of Rives, Leavell & Co., a church bond broker in Jackson, Miss., said that firms specializing in church financing often aped their commercial loan counterparts, lending too much money without a thorough check of what their clients could afford. "The starting point was the commercial banks," Leavell said. "When somebody on one side of the business gets moving fast and loose, it makes every body else move fast and loose." (let's not the borrower off so easy - assuming a rainy day never will occur seems to be a systematic disease in the country)