Churches can’t pay the mortgage either

The Number of Religious Facilities Unable to Pay Their Mortgage Is Surging


Traditionally, lenders considered churches a good risk because of tithing, as well as the moral compulsion felt by most pastors to pay down debt.  Historically, churches wanting to build turned to their governing bodies or to specialized lenders that originated fixed-rate 25-year to 30-year mortgages.

But during the real-estate boom, like everywhere else, things just weren’t quite the same.

Regional and community banks attracted churches with lower rates on shorter-term loans. At the same time, some bond underwriters began offering churches more money up front if they issued so-called compound-interest bonds. In such cases, churches often paid nothing until the bonds came due years later… but then had to pay both the principal and accrued interest which often doubled the amount they owed.

Many such bonds come due in the next few years. But with property values down and cash in short supply, many churches (like families) won’t have the funds to pay or be able to refinance.

“In 2011 and the next couple of years, we’re going to see a big maturity wall hitting these churches,” said Scott Rolfs, head of Wisconsin-based investment bank Ziegler and Co.’s Religion and Education practice.

Religious denominations of all kinds have suffered in recent years as donations have declined, with many Catholic parishes closing, and some synagogues merging their congregations. But the property-financing problems have been concentrated among independent churches which often lack a governing body to serve as a backstop to financial hardship.

“Religious organizations may be subject to the laws of God but they are also subject to the laws of economics,” said Chris Macke, senior real-estate strategist. Many troubled churches are located in states such as California, Florida, Georgia and Michigan, which also have some of the highest home-foreclosures rates in the country.

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