The attitude toward lending in the religious industry
resembled everything else going on in U.S. lending in
the mid-2000s: find those in need of capital and offer
funding at significantly higher levels than had been
previously available. As with the home mortgage
industry, the federal government got involved to some
extent. As a centerpiece of his election campaigns,
President George W. Bush championed faith-based
outreach initiatives to churches nationally. A number
of religious organizations received federal funding
for certain secular welfare and outreach programs
they were already operating. This new government
funding for certain churches, including many located
in American inner cities, also helped contribute to the
demand for new facilities and the associated expansion
of church lending.
At the peak of religious lending in 2007 and 2008,
borrowers were regularly interacting with specialty
lenders, such as the Evangelical Christian Credit
Union, Church Mortgage Acceptance Corporation and
Strongtower Financial along with Ziegler. A number of
major regional banks also got in on the action. National
City Bank and Bank of America both ramped up lending
to the religious community.
What Happened — and Why?
Then came 2008. When the real estate market crashed
in September of that year, it took the church lending
market along with it.
Most of the lenders mentioned above — and countless others — exited the industry as their loan portfolios took a beating. Some lenders voluntarily pulled
back from the religious sector and some had regulators pull them back. Others had their investors depart
after encountering heavy losses. Default rates on newly
originated church loan portfolios pushed past 20%
To understand the religious sector today, it’s important to first consider the events of the past wo decades. The strong economy and stock
market that prevailed in the late 1990s, combined
with the Federal Reserve’s easy money policy after the
terrorist attacks on September 11, 2001, created a perfect
storm for churches to grow and expand, both in terms
of congregation and facility size. In the 90s, the stock
market wealth ushered in a new level of church stewardship by congregation members who desired to donate
funds for new building projects. At the same time, low
interest rates created an abundance of funds to lend.
This led to a significant building boom in the religious community. U.S Census Bureau data shows that
annualized construction for “houses of worship” topped
out at approximately $8 billion in 2003. This boom was
linked to a growing U.S. population that was moving to
the suburbs and requiring new infrastructure, including
churches. At the same time, low interest rates and a glut
of cash worldwide was bringing capital into the sector
looking for yield. As a result, between 2003 and 2008
a number of niche church lenders sprang up or greatly
expanded their reach. Capital flowed freely to fund new
church construction, whether from banks, credit unions
or bond underwriters.
The Boom, the Bust and the Future
BY SCOTT ROLFS
For more than 100 years, Ziegler Investment Bank has specialized in lending to churches, schools and
nonprofit organizations. Managing Director Scott Rolfs explains how lending to churches differs from
lending to other businesses, although it is not immune to the economic turbulence that has rocked the
post-Great Recession lending world.
SCO T T ROLFS
Ziegler Investment Bank
The attitude toward lending in the religious industry resembled
everything else going on in U.S. lending in the mid-2000s: find
those in need of capital and offer funding at significantly higher
levels than had been previously available.